Understanding the Factors Leading to Israel’s Competitive Strengths

Many books and articles have been written about the differences between cultures, and about the challenges of conducting business or casual interactions across international borders.  This article is largely based on personal experience and provides a closer look into the attributes that effect the competitive nature of Israeli companies.

Introduction

Israel is a country that typically elicits geopolitical discussions in complete disproportion to its small geographical size.  While geopolitical discussion is important, it often overshadows this country’s greatest achievements, which affect the health and livelihood of millions across the globe. 

How did it happen that this country, built out of the ashes of the Holocaust, became a leader in so many ways?  Israel has the greatest number of engineers per capita in the world, the greatest number of technology startups second only to the United States, the largest number of companies on NASDAQ (other than the United States), and some of the most advanced technological solutions that affect the lives of so many.  How did this happen, and how can American companies tap into its strengths?

In this article I’d like to zero in on just a few important factors, but attempt to provide a glimpse into unique aspects that have had less obvious, but nevertheless tremendous effect on the culture, attitude, and mindset of the average Israeli – ultimately affecting the competitive nature of their industry.  The dynamic impact of the average Israeli on the country’s success has been shaped by events of recent Jewish history, the geopolitical environment of Israel, the economic policies of the government of Israel, and Israel’s military.

Recent Jewish History

Few people can truly relate to the psychological effects the Holocaust has had on the Jews.  Pre-1933 Western European Jews belonged to the main group of civilized, well-educated and typically financially successful people.  They were loyal citizens of their home countries, and were under the impression they were accepted as equals by their non-Jewish peers.  Most could not comprehend the humiliation, degradation and systematic extermination they would suffer.  They were forced to seek refuge and support from nations that expressed little interest in them, or desire to help.  Those who survived dealt with the loss of family, friends, and property, their way of life and their dignity.  The shared experiences of the Jews led many of them to believe they were on their own, and that no one really cared for them, regardless of their contributions to society.  This traumatic episode had an important impact on many Jews, and affected the general mindset of those who founded the modern State of Israel in 1948:

-          Self-reliance: Jews cannot rely on third party support as it may be non-existent or merely temporary, depending on political whims or other factors.  Therefore, Israelis must identify creative methods for addressing challenges.

-          External validation: Jews seek international recognition, respect and validation, but realize they must earn them through accomplishments:

o   Building a modern western society in Israel, which can proudly complete against the most advanced and enlightened nations

o   Addressing international challenges with greater success through the development of advanced technologies and creative solutions, and through humanitarian deeds

Geopolitical Environment

The modern State of Israel was established in 1948 by resolution of the United Nations.  It was established as a Jewish State, signifying the deep-rooted historical, cultural, and religious connection of the Jewish people to the land.  Although it was established as a true social Democracy, where people of all cultures and religions enjoy complete freedom and equal rights before the law, the system is primarily centered on the Jewish nature of the country, subject to guaranteed freedoms to those of other social and religious backgrounds.  In fact, Israel is objectively the most pluralistically tolerant country in the Middle East.

Conflicts between the Jewish and Arab populations of Israel, even before the country’s establishment in 1948, created a great sense of mutual distrust.  Immediately upon declaring its independence, the young State of Israel was attacked by the armies of seven surrounding Arab states within hours of declaring its independence.  Local gangs of Palestinian Arabs participated in this conflict as well, following a call to destroy the young state and to “push the Jews into the Sea.”  Despite an overwhelming military disadvantage in both trained soldiers and weaponry, Israel prevailed.  Several wars followed, including the Sinai Campaign of 1956, the Six Day War of 1967, the Yom Kippur War of 1973, the Lebanon War of 1982, the Gulf War of 1991, the Second Lebanon War (against Hizbollah) of 2006, and the war in Gaza.  The country also faced hundreds of terror attacks, and wars of attrition – all inflicted by Palestinian Arabs, by surrounding Arab states, and to a limited degree by Arab citizens of Israel. 

One would expect such circumstances to curtail any economic progress or innovation, yet in Israel they served to strengthen both.  In addition, they had the following effects on Israeli Jews:

-          Sense of Community: The external and existential threats created an invisible bond that manifests itself in the sub-conscience of Israelis regardless of their background or place of residence.  Because of this bond, Israelis connect on a deep level that often transcends interpersonal tensions.  Important values like team work, loyalty, and working for the common good are the results.

-          International Outlook: Israel is surrounded by countries with which it has little or no economic relationships, either because of a state of conflict, or because of the lack of purchasing power.  Israeli entrepreneurs are forced, therefore, to look elsewhere to Europe, the United States and Asia as their primary target markets.  Technologies are therefore geared towards addressing international challenges.

-          The Military Experience: Besides benefiting from the technological advantage of the Israeli military and the unique training it provides, soldiers enter civilian life carrying close personal bonds they formed during their service, significant leadership experience, and having learned important values and discipline.   

Transformation of Economic Policies

The Eastern European survivors of World War II, especially those from the former Soviet Union and its client states, lived under the Soviet version of socialism and communism.  They realized that the need to build the country, literally from scratch, required a collective effort.  They sought to implement an improved socialist system in Israel, and their philosophies and world views shaped the country in its early days and through the late 1970’s.  By that time, the country had matured enough that the liberal socialist political parties were replaced in a sweeping electoral change, which ushered in an era of ever expanding economic freedom, and the metamorphosis of Israel from a socialist society to a western-style capitalist one.

The socialist foundation of the country served its purpose in the early years, but later became an impediment to growth and innovation.  Nevertheless it did create an enduring ethos of community, in particular the concept of sharing and combining forces to achieve a goal.  The small geographic size of Israel also fostered an informality of interpersonal interaction.  Israelis in general are gregarious, and prefer to conduct much of their business at coffee shops and restaurants.  They are accustomed to forming close knit social groups, and often carry business relationships past “business hours.”  Rigid protocols of business interaction which are present in other societies, and which can often result in delays and the stifling of the free exchange of ideas, are rarely seen in Israel.

The transformation of Israel’s economic policies, coupled with the inherent societal norms, unleashed the entrepreneurial and innovative nature of Israelis, and allowed them to build and manage companies around close knit teams and social networks.

Military

The Israel Defense Force (IDF) was established in 1948 after having combined the armed forces of the Jewish community (“Yishuv”): Hagana, Palmach, Etzel, and Lechi.  Because of the “rough neighborhood” in which Israel resides, and the small population of the country on which to support defense spending, its military had no choice but to become the strongest and most efficient in the region.  The IDF had to be the most innovative, and the most technologically advanced.  Except for some exceptions, every Jewish male serves at least three years in the army, and every Jewish woman serves two years.  For many non-Jewish citizens, in particular Christians and members of the Druze community, military service is voluntary, yet widespread (particularly with the Druz).

Many Israelis gain important technological know-how and experience in the IDF, which they then take into their civilian life and into innovative hi-tech companies.  Military service also has a number of powerful, yet subtle effects, including:

-          Can-do Mentality: Failure in the military setting is not an option.  It costs lives and wastes scarce resources.  Given the small geographic size of the country, failure to meet an objective can even result in an existential threat to the country.

-          Team Work: Israelis learn to work in teams.  This is the basic structure in the IDF, and one that is conducive to making important decisions or achieving success in combat.  Furthermore, the IDF serves as an effective melting pot where Israelis from different ethnic backgrounds (Russians, Ethiopians, Romanians, Moroccans, etc.) learn to work together and look beyond cultural, ethnic or racial differences.

-          Intolerance for Error: Israeli soldiers must succeed in their tasks, whether they are in combat or in the engineering department.  In combat there are rarely second chances – the aircraft must fly, the bombs must deploy, the hill must be conquered.

-          Higher Source of Power: Israeli soldiers are not only armed with weapons.  They are also armed with the knowledge that losing a war could have disastrous results for the country, for their friends, and most importantly, for their family.  Unlike many countries where the soldier’s family is tens of thousands of miles away, an Israeli soldier in combat knows that his family and home may be closer than the typical American’s daily commute, and thus within the range of his opponent’s weaponry.  This knowledge provides enormous strength and durability, which carries into all aspects of life.

-          Structure and Organization: Like any military force, the IDF also places great value on structure and organization (although at the same time it also encourages independent thinking and creativity).  Although this structured thinking hasn’t become the strongest characteristic of Israelis, it manifests itself in different situations, including in business and in technological innovation.

-          Creative Thinking: While structure and organization are key elements of the military, the IDF also strongly encourages creative thinking to address situations where structured rules might not apply.  Even the military system of rank is challenged in situations where a given order is deemed illegal beyond any doubt and in cases where the life of innocent people is at stake.  Israeli soldiers learn that while structure and organization are to be respected, there are times when they must take the initiative to think independently and bypass the rules to achieve a desired result.

-          Goal, versus Process Orientation: Israelis learned to be goal-oriented.  In the army, they have clear tasks that must be achieved one way or another.  Process is less important than results.

-          Leadership: The IDF places a great deal of value on leadership, not only for officers, but also for low-ranking soldiers who learn early on that in some situations they must take matters into their own hands.  For example, because IDF officers lead their troops into combat (rather than follow them), many of them are first to by incapacitated by enemy fire.  In such situations, lower-ranking soldiers must take matters into their own hands and lead their peers into battle. 

Summary

It is particularly during these rough and uncertain economic times that American and European companies must seek out methods, products and systems that could help them to gain a competitive advantage in the marketplace.  These include infrastructure technologies that reduce operational costs and increase efficiencies, innovative products that generate new revenue streams, systems and solutions that create a competitive edge, and more.  Israel is blessed with a high concentration of some of the most brilliant technological minds that could be tapped into at competitive costs.

Several factors have come together to create this wealth of opportunity in a country that is similar in size to the State of New Jersey in terms of its geography and population. These factors include:  the geopolitical environment surrounding Israel, its history, the military force and experience, government economic policies, the education system, and more.  But it’s equally important to understand how these and other factors affected the culture, attitudes and mindset of the average Israeli, as these are attributes that cannot be replicated anywhere else in the world.

American and European companies in such fields as Life Sciences and Healthcare, Software, Security, Communications, Homeland Security and Defense, New Media and others should take a closer look at Israel for developing local R&D centers, for acquiring technologies and products, for making profitable and strategic investments, and for forming partnerships.

Ilan Friedman

ilan@ncompas.net