Israel
Israel has an IT services market valued at USD $1.6 billion, and many analysts predict that this will expand to USD $2 billion by 2014. Israel is a dominant player in software and research development; HP-Israel’s software sector the largest research & development center in the world. Much of its success can be attributed to the large quantity of technically trained resources, particularly the large number of its expatriate Jewish population living in the U.S. Israel also invests in development and research to attract foreign investors. One of its known strategies was to offer firms a $200-per-month subsidy for every worker employed by foreign companies, attracting reputable companies around the world, particularly IBM, Motorola, Microsoft, and Intel.
Aside from software development, other key sectors have great potential for the country including government defense and healthcare IT. Israel has a cultural affinity with the west, making it easier to develop and maintain business relationships. The recent outpouring of immigrants has become a great advantage for the country. Because of Israel’s multilingual culture, the country is becoming a hotspot for sourcing companies, in particular for call centers.
Israel’s reputation as a strong player for sourcing services began in 2005 when it was included in a survey that listed the top twenty locations for outsourcing businesses. Many of its accomplishments can be attributed to its workforce, where highly trained military computer specialists started a civilian career in the I.T. sector upon exiting the army.
As with all countries, the global financial crisis affected Israel’s economy, spurring a brief recession. Solid economic fundamentals, including a stable banking sector, wise fiscal policies, and liberalizing reforms acted as strong buffers that minimized the negative impact.
Country overview
Israel is a parliamentary republic and the only predominantly Jewish state in the world. It has an estimated population of 7.5 million, six million of them Jewish. Israel is the only nation to operate under the Hebrew calendar. Its two primary languages are Hebrew and Arabic, with English also widely spoken. English is taught in elementary schools, and English-language television programs are also aired in broadcast networks, making the language more accessible to everyone. Recent decades saw Israel welcoming migrant workers from China, Africa, South America, Thailand, and Romania, adding diversity of culture to its community.
Israel's economy is also diverse and dynamic, particularly its high-tech sector. Most of its advanced industries are situated around Jerusalem and Tel Aviv, locations that have garnered recognition in the past. Newsweek once named Tel Aviv as one of the most technologically influential cities in the world. Today, Tel Aviv is also the nation’s primary financial hub, with Haifa the most important industrial center.
Its major industrial sectors include transport equipment, chemicals, processed food, metal products, biomedical and electronic equipment, and high technology. The influx of Russian immigrants that began in 1989 added to the highly educated and well-skilled workforce, giving an added boost to the economy, particularly in the high-tech sector. Almost one-half of the country's exports are high-tech.
Despite the global crisis, the country was able to manage to expand its GDP in 2009 with an average growth rate of seven percent, primarily due to exports and foreign investment. Israel’s current gross domestic product is USD $201 billion or $217 billion when measured using the purchasing power parity (PPP).
Source: CIA Factbook, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Cost competitiveness
Israel has lower costs compared to the U.S., although its employment wages are higher than India. This does not keep sourcing companies from investing, because Israel offers a higher level of English competency when compared to other global sourcing locations.
Employee compensation
Israel is not as cost-competitive as it was once, with most wages in the IT sector almost at par with U.S. resources. For example, Software Engineers with one to four years of experience command 90 percent of US salaries. Senior software engineers and developers with 10 to 20 years experience earn on average USD $77,000 or 80 percent of their US counterparts. Senior project managers in Israel offer comparable margins, earning 83 percent.
Wages for junior non-voice BPO resources average 58 percent, while senior resources are much higher, at 92 percent.
Real estate
According to CB Richard Ellis, office occupancy costs in Tel Aviv averages USD $44 per square foot annually for top quality downtown real estate. Costs outside the cities are generally more competitive, with real estate in suburban Tel Aviv averaging USD $30 per square foot annually.
Source: PayScale, SourcingLine, February 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: CB Richard Ellis, Colliers International, SourcingLine, March 2010
Source: Colliers International, SourcingLine, March 2010
Source: KPMG, October 2009
Source: KPMG, October 2009
Source: Doing Business (World Bank), 2010
Real Estate : Office occupancy costs are for Tel Aviv.
Resources and skills
Outsourcing sector
Israel’s computer hardware market, which includes computer accessories, servers, notebooks, and desktops, was estimated to be worth USD $2.2 billion in 2010. It is expected to expand to USD $2.6 billion by 2014. Exports of miscellaneous business services, such as offshore BPO legal, call center services, research and development, management, and accounting services is about USD $6 billion, ranking ninth after the U.S., China, India, Canada, Brazil, Russia, Poland and Thailand.
Education
Education is an important component in Israel’s culture, with schools significantly subsidized by the state. Israel’s educational system focuses on progressive trends, with some of the most developed science and technology education in the world. Israel leads in expenditure on education, spending eight percent of its GDP compared to the U.S. (7.7), Mexico (6.4), Ukraine (6.3), Malaysia (6.2), Poland (5.9), and Chile (5.7). Israel’s universities are among the top 100 world universities in science and engineering, and rank fourth in the world for the most scientific publications per one million citizens, almost 10 percent higher than the global average.
Language
There are many U.S. ex-patriots and immigrants in Isreal, providing a large number of English foreign language speakers for outsourcing companies.
Technological readiness
Israel has a high PC penetration and strong broadband growth. Presently, the country has 30 users per 100 inhabitants. The International Telecommunications Union currently ranks Israel third among leading Internet subscribers in the world. Broadband Internet access is also high, with nearly 23 of every 100 persons connected.
Source: CIA Factbook, 2009
Source: IMF, 2008
Source: IMF, 2008
Source: UNESCO, 2009
Source: UNESCO, 2009
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: UNESCO, 2009
Source: UNESCO, NASSCOM, SourcingLine, 2009
Source: International Telecommunications Union, 2009
Source: International Telecommunications Union, 2009
Outsourcing Sector : Israel does not report at the Misc. Business Services level. Number includes merchant services (i.e. Other Business Services).
Business and economic environment
Economic competitiveness and stability
Israel is economically competitive, following the U.S., Canada, and Malaysia among the top four nations with the highest Global Competitive Index published by the World Economic Forum. It has an above average macroeconomic stability, following Malaysia, Czech Republic, and South Africa in the list.
Despite its flourishing high-tech sector, the Israel’s general economy is not benefiting from the same advantages, with many of the high-tech entrepreneurs focused on exit strategies rather than growing their businesses into a strong individual firm. Too few jobs are created, with only a few exports and little investment that can make a significant impact on the economic future.
Infrastructure
Israel ranks eighth among the countries with the highest score for quality of roads. Its electric supply quality is also very high, scoring an index of 6 after Canada (6.6), the U.S. (6.4), and Czech Republic (6.4). Similarly, its mobile phone penetration for every 100 inhabitants is high at 127.
Labor market efficiency
A country's ability to flexibly manage its workforce is an important component in assessing overall business competitiveness. According to a data co-published by the World Bank, Israel has very flexible workforce management, ranking fifth after the U.S., Canada, Malaysia, and Thailand..
Regulation
Israel ranks fifth for overall ease in starting and running a business. The country's index is 29, compared to the US (4), Canada (8), Thailand (12), and Malaysia (23). According to World Bank's survey, it takes an average of 34 days to register a start-up and 230 hours to pay taxes every year.
Corruption
The Israeli government has been taking steps to fight corruption. In addition to the domestic anti-bribery regulatory framework developed by the government, Israel also operates in accordance to the UN and OECD conventions aiming to combat bribery of foreign public officials in international business transactions.
According to the Transparency International, Israel is winning its battle against corruption. In 2009, Israel ranked fourth among the countries with the best corruption perceptions, scoring a 6.1 index.
Legal protections of intellectual property
Israel’s contracts and legal protections are moderate. There are 35 procedures in place to enforce a contract, but time to enforce these contracts is high at 890 days. This is quite high when compared to the US, which is just 300 days. The average cost in Israel to enforce a contract is more than 25 percent of the original claim.
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: International Telecommunications Union, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Transparency International, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: The Global Competitiveness Report, 2009
Source: BSE-IDC Global Software Piracy Study, 2009