document

1
Nature © Macmillan Publishers Ltd 1998 8 [JERUSALEM] The Israeli government is com- ing under increasing pressure from execu- tives of high-technology companies to do more to promote the growth of their sector of industry, and to provide greater support for research. Some of these companies, which play a key role in Israel’s economy, are warning that they may be forced to transfer their research activities abroad unless they receive more government support. They say it will be cheaper to do the work in the United States. The Knesset, Israel’s parliament, is still considering budget legislation for 1999, but the outlines of the research and development budget are already fairly clear. Despite addi- tional funding, at US$407 million the budget falls nearly $200 million short of what the Office of the Chief Scientist says is necessary to fund all worthy projects. Growth vital to the economy Large companies will be especially hard-hit, says Benny Sofer, deputy to the Chief Scien- tist. To channel more funds to smaller, newer firms, the finance ministry has set a cap on grants to large companies. Sofer fears that the larger firms will reduce their research and development (R&D) activities as a result. High-technology products made up 62 per cent of Israel’s industrial exports in 1997 — up from 51 per cent less than ten years pre- viously — and were valued at $9.2 billion. A recent, unpublished survey is said to have found that the software industry alone achieved exports worth $1 billion in 1997. Ephie Segal, chief economist in the Office of the Chief Scientist in the Ministry of Com- merce and Industry, says that, given Israel’s small size, the continued growth of high- technology industries — including electron- ics, software, pharmaceuticals, biotechnolo- gy and aerospace — is vital to the economy. But he also points out that the future suc- cess of such industries depends on current investment in R&D. Israel’s investment in R&D of 2.2 per cent of gross domestic prod- uct (in 1995) puts it comfortably among the leading industrialized nations. But the Chief Scientist’s office and industry minister Natan Scharansky have been pushing for an increase in government R&D funds. Shuky Abramovich, head of the econom- ics division of the Electronics and Software Branch of the Manufacturers’ Association, says industry needs another $210 million to be invested in R&D. “At present, only 55 per cent of requests for grants are approved, and the demand is growing because industry — especially start-up companies — depends on these funds,” says Abramovich. “But we don’t see any long-term solution to this problem.” According to Abramovich, one tempo- rary solution being considered by the indus- try ministry is for large companies to be offered the opportunity to pay off in advance — and at a discount — royalties owed to the R&D fund from profits earned from prod- ucts made with the help of government grants. These funds would be funnelled back into R&D grants during the coming year. Marketing and staffing problems The ministry has also asked for government funds to support the industry’s marketing activities. Many companies with good ideas have failed to market their products abroad, eventually either failing or being bought by foreign companies which often transfer pro- duction and marketing overseas. Scharansky has been lobbying Prime Minister Binyamin Netanyahu for greater assistance, pointing to the companies’ threat to move research activities abroad. Although different high-tech companies have varying needs, most agree that the tax structure creates disincentives for the development and marketing of high-tech products. There is also a broad consensus that the country’s technical infrastructure — such as telephone lines and charges — is not mod- ernizing quickly enough. And industry says the government is not investing enough in technical and scientific education. Other concerns are more sector-specific. The largest high-tech sector, electronics and software, suffers from a lack of skilled staff. According to the Manufacturers’ Associa- tion, the industry is likely to face a shortage of 10,000 engineers over the next five years. Although this reflects a global shortage in these fields, it also threatens to eliminate one of Israel’s competitive advantages. “Until five years ago, manpower was rela- tively cheap here and Israeli entrepreneurs could take off,” says Yoel Raban, an econo- mist at Tel Aviv University who has worked as a consultant for the Industrialists’ Associa- tion. “But high manpower costs are now a problem for start-up companies.” In response to such concerns, the higher- education system recently announced plans to double the number of Israelis holding degrees in electrical and computer engineer- ing and computer science over the next five years. But industry says this is not enough. “We’re facing a bottleneck and I’m not sure that there is a lot we can do about it in the short run. We seem to have reached the limit,” says Raban, adding that it may be nec- essary to import professionals from coun- tries such as India. Segal advocates bringing in engineers from the Far East, as is done in the United States. But that would require a major shift in Israeli culture. Until now, universities and industries searching for overseas talent have usually focused on Jewish candidates. According to Abramovich, the authori- ties are likely to rectify some of the disincen- tives for high-tech companies in the tax structure. Changes could include making it easier to give employees stock options, and not requiring the immediate payment of tax when companies merge or split. In contrast to electronics, biotechnology, the second most important high-technology sector, has a glut of trained professionals. But it lacks investment funds. This problem was highlighted by a survey prepared this year by the Interdisciplinary Center for Technologi- cal Analysis and Forecasting at Tel Aviv Uni- versity (see Nature 392, 117; 1998). Biotechnology had sales of $336 million in 1997 and employed 1,259 scientists and engineers. But promised government money to encourage investment has not material- ized, to the disappointment of industry. Israel’s high-tech leaders are also worried about the effect of the economic crisis in the Far East. According to the daily newspaper Ha’aretz, Israeli high-tech companies have raised nearly $3 billion on Wall Street since the start of 1995, along with another $1 bil- lion in the past two years by venture-capital funds in New York. news analysis NATURE | VOL 396 | 17 DECEMBER 1998 | www.nature.com 611 Israeli industry asks for boost to R&D Haim Watzman High-technology industry makes up most of Israel’s industrial exports. But leading companies, worried by the government’s failure to invest in research and development, are threatening to take this work abroad. In demand: companies face a ‘bottleneck’ in the supply of trained electrical engineers. TEKNION

Upload: haim

Post on 23-Jul-2016

212 views

Category:

Documents


0 download

TRANSCRIPT

Nature © Macmillan Publishers Ltd 1998

8

[JERUSALEM] The Israeli government is com-ing under increasing pressure from execu-tives of high-technology companies to domore to promote the growth of their sector ofindustry, and to provide greater support forresearch.

Some of these companies, which play akey role in Israel’s economy, are warning thatthey may be forced to transfer their researchactivities abroad unless they receive moregovernment support. They say it will becheaper to do the work in the United States.

The Knesset, Israel’s parliament, is stillconsidering budget legislation for 1999, butthe outlines of the research and developmentbudget are already fairly clear. Despite addi-tional funding, at US$407 million the budgetfalls nearly $200 million short of what theOffice of the Chief Scientist says is necessaryto fund all worthy projects.

Growth vital to the economyLarge companies will be especially hard-hit,says Benny Sofer, deputy to the Chief Scien-tist. To channel more funds to smaller, newerfirms, the finance ministry has set a cap ongrants to large companies. Sofer fears thatthe larger firms will reduce their research anddevelopment (R&D) activities as a result.

High-technology products made up 62per cent of Israel’s industrial exports in 1997— up from 51 per cent less than ten years pre-viously — and were valued at $9.2 billion. Arecent, unpublished survey is said to havefound that the software industry aloneachieved exports worth $1 billion in 1997.

Ephie Segal, chief economist in the Officeof the Chief Scientist in the Ministry of Com-merce and Industry, says that, given Israel’ssmall size, the continued growth of high-technology industries — including electron-ics, software, pharmaceuticals, biotechnolo-gy and aerospace — is vital to the economy.

But he also points out that the future suc-cess of such industries depends on currentinvestment in R&D. Israel’s investment inR&D of 2.2 per cent of gross domestic prod-uct (in 1995) puts it comfortably among theleading industrialized nations. But the ChiefScientist’s office and industry ministerNatan Scharansky have been pushing for anincrease in government R&D funds.

Shuky Abramovich, head of the econom-ics division of the Electronics and Software

Branch of the Manufacturers’ Association,says industry needs another $210 million tobe invested in R&D. “At present, only 55 percent of requests for grants are approved, andthe demand is growing because industry —especially start-up companies — depends onthese funds,” says Abramovich. “But wedon’t see any long-term solution to thisproblem.”

According to Abramovich, one tempo-rary solution being considered by the indus-try ministry is for large companies to beoffered the opportunity to pay off in advance— and at a discount — royalties owed to theR&D fund from profits earned from prod-ucts made with the help of governmentgrants. These funds would be funnelled backinto R&D grants during the coming year.

Marketing and staffing problemsThe ministry has also asked for governmentfunds to support the industry’s marketingactivities. Many companies with good ideashave failed to market their products abroad,eventually either failing or being bought byforeign companies which often transfer pro-duction and marketing overseas.

Scharansky has been lobbying PrimeMinister Binyamin Netanyahu for greaterassistance, pointing to the companies’ threatto move research activities abroad. Althoughdifferent high-tech companies have varyingneeds, most agree that the tax structure creates disincentives for the developmentand marketing of high-tech products.

There is also a broad consensus that the

country’s technical infrastructure — such astelephone lines and charges — is not mod-ernizing quickly enough. And industry saysthe government is not investing enough intechnical and scientific education.

Other concerns are more sector-specific.The largest high-tech sector, electronics andsoftware, suffers from a lack of skilled staff.According to the Manufacturers’ Associa-tion, the industry is likely to face a shortage of10,000 engineers over the next five years.Although this reflects a global shortage inthese fields, it also threatens to eliminate oneof Israel’s competitive advantages.

“Until five years ago, manpower was rela-tively cheap here and Israeli entrepreneurscould take off,” says Yoel Raban, an econo-mist at Tel Aviv University who has worked asa consultant for the Industrialists’ Associa-tion. “But high manpower costs are now aproblem for start-up companies.”

In response to such concerns, the higher-education system recently announced plansto double the number of Israelis holdingdegrees in electrical and computer engineer-ing and computer science over the next fiveyears. But industry says this is not enough.

“We’re facing a bottleneck and I’m notsure that there is a lot we can do about it in theshort run. We seem to have reached thelimit,” says Raban, adding that it may be nec-essary to import professionals from coun-tries such as India.

Segal advocates bringing in engineersfrom the Far East, as is done in the UnitedStates. But that would require a major shift inIsraeli culture. Until now, universities andindustries searching for overseas talent haveusually focused on Jewish candidates.

According to Abramovich, the authori-ties are likely to rectify some of the disincen-tives for high-tech companies in the taxstructure. Changes could include making iteasier to give employees stock options, andnot requiring the immediate payment of taxwhen companies merge or split.

In contrast to electronics, biotechnology,the second most important high-technologysector, has a glut of trained professionals. Butit lacks investment funds. This problem washighlighted by a survey prepared this year bythe Interdisciplinary Center for Technologi-cal Analysis and Forecasting at Tel Aviv Uni-versity (see Nature 392, 117; 1998).

Biotechnology had sales of $336 millionin 1997 and employed 1,259 scientists andengineers. But promised government moneyto encourage investment has not material-ized, to the disappointment of industry.

Israel’s high-tech leaders are also worriedabout the effect of the economic crisis in theFar East. According to the daily newspaperHa’aretz, Israeli high-tech companies haveraised nearly $3 billion on Wall Street sincethe start of 1995, along with another $1 bil-lion in the past two years by venture-capitalfunds in New York.

news analysis

NATURE | VOL 396 | 17 DECEMBER 1998 | www.nature.com 611

Israeli industry asksfor boost to R&DHaim Watzman

High-technology industry makes up most of Israel’s industrial exports. Butleading companies, worried by the government’s failure to invest inresearch and development, are threatening to take this work abroad.

In demand: companies face a ‘bottleneck’ in thesupply of trained electrical engineers.

TE

KN

ION