With Eye on Innovation, Israel Aims to Double Number of Those Working in High-tech

Innovation Authority also determined to make Israels old-line industries more innovative

A scientist uses an oscilloscope during tests in sound perception in a sound proof laboratory at the Noveto Systems Ltd. office in Petach Tikva, Israel, on Tuesday, Feb. 14, 2017. The system, which uses 3D sensors and proprietary software, tracks the user's position and pinpoints an individual to dynamically focus audio beams to follow the user's ears. Photographer: Rina Castelnuovo/Bloomberg
Rina Castelnuovo/Bloomberg

The Israel Innovation Authority aims to double the number of high-tech workers in the country over the next decade, while encouraging companies in older industry to use more technology and become more innovative, the authority said in its annual reported released on Sunday.

The report documents what it said was a serious shortage of quality engineers and software professionals, which was causing wages (and therefore costs) to grow and preventing the industry form growing as fast as it could.

High-tech today employs about 250,000, or just 8.3% of Israels labor force despite Israels reputation as Startup Nation. The Innovation Authority aims to bring that number up to 500,000 in 10 years time.

One critical piece of evidence of the shortage is a 38% increase in high-tech salaries from 2005 to 2015. The average monthly salary in the sector now is 21,000 shekels ($5,950), more than double the 9,900 average nationwide. The growth in pay has made Israel less cost competitive, the report said, especially as the shekel appreciated 13% during those years.

Meanwhile, the authority is determined to widen the scope of its activities and is no longer using the term high-tech but innovation-oriented industries to describe its widening mandate. The authority said it aims to become more proactive – not just accepting applications for research and development grants but encouraging companies in older industries to employ robotics and sensors and other advanced- manufacturing technology.

Israels manufacturing industry isnt innovative enough and has trouble competing with low-cost Asian countries. It doesnt always meet the same standards of quality and innovation as in the West, Aharon Aharon, the authoritys CEO, told TheMarker. If we dont move them forward, the gap between the high-tech and old-line economies will widen.

The authority has created an index that measures an industrys progress on innovation based on productivity, which means companies not traditionally rough of high-tech will come under the innovation-oriented rubric. In 2017, the authority has given more than 280 companies in old-line industries assistance.

Were taking companies from older industries, some of which do neatly no R&D, and examine what is preventing them from being competitive, Aharon said. Unusually we find some element that isnt price competitive versus the industry in East Asia or some quality aspect that isnt competitive with the West.

To help these companies, consultants from the authority help them design an R&D program and together with the Economy and Industry Ministrys Investments Center put together a program to introduce new, more advanced production processes.

Another concern of the authoritys expressed in the report is the plethora of R&D centers in Israel operated by multinational companies.

The centers have become a major element of the high-tech economy, accounting for close to half of all business R&D spending, up from 29% in 2006. Employment at the centers has grown over the last decade 14% annually, versus 5% for other R&D-oriented companies in Israel, the report said.

While the multinational; R&D centers have become a major source of high-paid employments and expose Israels to state-of-the-art management practices, they employ a narrow range of professions, mainly engineers and scientists, and the fruit of their research doesnt spin off to the rest of the economy.

The authority aims to encourage multinationals to expand their Israel operations include manufacturing, marketing, support and design, adding to local employment and creating jobs for non-engineering professionals.