Israel well positioned for business fights

Israel’s greatest natural resource is its brainpower. But how will Israel be able to compete on the basis of brainpower when the Chinese and Indian powerhouses produce far more engineers and scientists than Israel?

How will Israel continue to attract foreign companies seeking to conduct research and development when salary levels in India and China are a fraction of the salaries that Israeli engineers and scientists are accustomed to earning?

China and India each graduate roughly 350,000 scientists and engineers each year, versus the 14,000 that Israel graduates annually. Indian engineers earn about half - and Chinese engineers earn about one-sixth - of the $100,000 that the comparative Israeli engineer earns. Israel will simply not be able to compete against India and China in terms of scale or cost.

Moreover, the Chinese are highly intelligent, disciplined and focused on moving to the forefront of scientific discovery and engineering feats.

• In China, there are over 200 R&D centers established by foreign firms such as Oracle, Siemens, Lucent, Microsoft, Nokia, Nortel, Agilent, IBM and Hewlett-Packard.
• The Institute of Electrical and Electronic Engineers notes that China ranks second only to the U.S. in publishing technical papers in nanoscience and nanotechnology.
• The Chinese government is increasingly successful in luring back to the motherland thousands of Chinese who have earned their PhD’s in engineering in the United States.
  

The Indians are also highly intelligent, speak English extremely well and have a relatively sound legal system dating back to the days of British rule. Our research indicates that India will boost its contract R&D revenues from $1 billion a year currently to $8 billion by 2008.

So how will Israel be able to maintain its coveted place as a champion of cutting edge technology?

First, Israelis have been much more successful in developing breakthrough technologies than either the Chinese or the Indians.

In the case of China, OECD figures indicate that Chinese nationals filed a mere 200 patent applications in 1995 and 299 in 1997. In 2001, only 5.43 percent of the patents filed in China by Chinese inventors were for invention. This was remarkably fewer than the 72.8 percent of innovation patents, as a percentage of total patents, filed by foreign firms in China.

India is much more successful in providing technology services, such as manning call centers and writing functional computer code than in developing novel inventions. India’s rigidity of management in terms of stature and formality impedes improvisation, creativity, and dedication to achieving goals. While development centers of international companies in India filed for over 750 patents by mid-2003, Indian IT service companies filed for less than 90.

Israel, on the other hand, has the third highest number of patent filings per capita and, according to IMD’s World Report, ranks third in the world in terms of the quality of basic research. Moreover, Israel ranks very high in terms of research “productivity” (scientific publications per capita) and “quality” (the frequency with which other scholars cite publications in their own articles).

Further, when taking into account how often Israeli patent applications form the basis for subsequent patent requests abroad, and using actual (rather than per capita) figures, Israel comes out in 13th place, even though it has a much smaller population than the 12 leaders.

In addition, Israel ranks first in research productivity in economics and business, mathematics, psychology, and psychiatry.

Second, discovering truly superior scientific revelations is contingent on the brilliance of small numbers of researchers.

Using the incidence of Nobel laureates as a proxy for genius, Israel’s Jewish population stands head and shoulders above the rest of the world. At least 167 Jews and persons of half-Jewish ancestry have been awarded the Nobel Prize, accounting for 22 percent of all individual recipients worldwide between 1901 and 2004, despite Jews only accounting for 0.25 percent of the world’s population.

While China and India may have hordes of good but less than phenomenal scientists and engineers, their numbers alone will not mute Israel’s advantage in producing transformative breakthroughs.

It is interesting to note that India is having difficulty finding even small numbers of exceptional software programmers. Google sponsored an India Code Jam in early 2005 in which top Indian programmers competed to write code with the best programmers receiving job offers from Google.

The winner of the Code Jam was Singaporean and the runner-up was Indonesian. Of the top 50 programmers, 8 were from Singapore and 3 were from Indonesia.

Third, Israel’s real competitive advantage is the ability to understand where major problems exist and then to visualize commercially viable solutions to alleviate the pressure points.

China and India present tremendous market opportunities for Israeli companies, and these powerhouses will make significant contributions to moving science and technology forward. These great emerging powers are not to be underestimated. However, China’s reputation for stealing intellectual property does not foster an environment in which its entrepreneurs’ idea-generating skills are honed. India has demonstrated even less initiative in becoming an innovation leader.