One year as Israel Association of Electronics and Software Industries director general, a position he is leaving this week, has taught Shlomo Waxe not to be fooled by the glittering statistics of the Israeli high-tech industry. Some of these figures show a red hot industry: record-breaking capital raising every year and a thriving and vigorous startup sector. What more could we ask for?
Waxe is nonetheless worried. Prosperity? Growth? Leave those slogans to the politicians and the journalists. "Stagnation" is the word he uses to sum up the state of Israeli high tech in the fall of 2016. "Israeli high tech came to a halt as early as 2009. From 10% annual growth in sales, we have now reached a position where nearing 5% growth makes us completely satisfied and happy. We call ourselves the 'startup nation,' but startups aren't everything. We should be the high-tech nation."
According to Waxe, the high-tech industry has been drifting, dazzled, and aimless for too long. Give them an exit and millions here and now, and everyone will fall all over them: the media will embrace them, their bank manager will give them a smile, and the prime minister might even call them to congratulate them for their innovation and Jewish genius. Another Israeli company has done it again for so and so many millions/tens of millions/hundreds of millions. What's wrong with that?
"It causes enormous damage to the entire industry. A cult of startups and exits has been created here. I'm not opposed to startups, but I want more established companies here like Comverse Inc. (Nasdaq: CNSI), Mellanox Technologies Ltd. (Nasdaq:MLNX), and NICE Systems Ltd. (Nasdaq: NICE; TASE: NICE). Yes, Comverse has vanished, but another company, Verint Systems Inc. (Nasdaq: VRNT), has succeeded it. The Israeli high-tech industry should be based on things like that - on companies that Israel can be proud of, not that someone here has made another exit."
"Globes": Again, what's wrong with that?
Waxe: "I'm not completely opposed to exits. In the case of Waze (sold to Google in June 2013 for $1.3 billion, Y.A.), it wouldn't have existed without an exit, because a company like that can't exist and grow in Israel. The problem is a lack of balance: we have to find the right combination of the exit culture and the high-tech nation - and such a balance hasn't been reached here. Israel needs several more Mellanoxes, several more NICEs, and several more Wix.coms."
The first to bow down and worship the golden calf - as Waxe calls the attraction of exits for young entrepreneurs - are policy makers, decision makers, and politicians. "For them, it's great. The whole world is coming to learn from us. They say that the Bible comes from Israel, but they don't understand that this bible is going away into exile and leaving nothing behind.
"We glorify an Israeli who has 'made it,' and who has been living in the US for 20 years. We still call him Israeli when he has had a US passport for many years, and his children don't know a word of Hebrew. For us, he's still 'an Israeli who made it'."
Is that the model?
Several months ago, Waxe presented a document entitled "A Growth Program for the High-Tech Industry" to Ministry of Finance budget director Amir Levy. It includes measures that he believes can increase the number of multinational companies operating in Israel or the creation of large companies here; development and expansion of scientific and technological education as a key to the industry's growth; ways of financing companies growing and operating in the high-tech industry; and a blueprint for encouraging high-tech companies and R&D centers. Waxe defines the problem at the beginning of the document:
"The number of new multinational companies manufacturing in Israel has not increased, the number of manufacturing companies with a sales turnover of over $100 million has also not increased, and the exit culture - the sale of successful young companies to foreign companies - is reducing the chances that large companies will arise here."
Waxe is convinced that the solutions depend on the government, some in the form of monetary incentives, such as tax breaks, subsidizing professional personnel, and support for local production. "Without incentives, we won't be able to halt the tendency to sell successful young companies to foreign companies," he says.
What incentive will make a young entrepreneur give up the dream of an exit and leave his company here?
"For example, intermediate funds established here that will encourage the entrepreneur to continue operating in Israel. I'm talking about a special fund for the high-tech industry to be founded with a safety net provided by the state, which will tell the entrepreneur that if he continues to develop his venture in Israel, he will get x amount of money in personal encouragement remuneration. With this remuneration, he will buy the home he has been dreaming of in Savion or Kfar Shmaryahu and achieve what he is aiming at, but his company will still be here."
But after the home in Savion, he will want a yacht.
"The yacht will come later. Meanwhile, he'll go on managing and developing his company in Israel. Instead of making the usual exit, which takes the company away from Israel and puts it into foreign hands, the entrepreneur will make an internal exit. He'll hold an IPO for the company later, develop and expand it, and the number of jobs in the sector will also increase. A real industry will grow here. Everyone will profit from it."
Waxe believes that the arsenal for combating the exit culture should include the names of "talents" who arose in Israeli high tech - managers and senior executives in the industry who have made it, and have still chosen to remain here. He wants to see Benny Landa, who founded Indigo and sold it to HP for $830 million after making the deal contingent on keeping the company's business in Israel, and Check Point Software Technologies Ltd. (Nasdaq: CHKP) founder Gil Shwed, at the forefront. He wants them, and those like them, to be the heroes of young local entrepreneurs - the models they will look at and want to imitate. "Let them found companies here. They don't have to be giant companies. It's enough for them to be companies with $100 million a year in sales. 10 like that every year is $1 billion. This situation will change things completely.
"But to get there, we have to stop glorifying every exit. This glorification is destructive. People look at it, see how much it was sold for, and want to do it, too. They want to make their fortunes. I understand them. I don't condemn them, but I want them to look at Gil Shwed, who has created something great here that is known all over the world, who has both made his fortune and stayed here. Only that way will a high-tech industry arise here."
Education instead of importing workers
According to the program submitted by Waxe to the Ministry of Finance, sustainable growth in the high-tech industry also means increasing the number of graduates of universities and technology schools to fill the ranks. He asserts that the regular study programs designed by the educational system in an attempt to meet these needs are under-budgeted, and their implementation is being negatively affected by the lack of a stable policy - a situation created by the frequent changes of governments and ministers of education, each of whom tries to reinvent the wheel. The government has a plan of action that may fill the ranks in the high-tech companies, which are starved of trained engineers and technicians: importing thousands of foreign workers who are specialists in their fields. A team headed by Prime Minister's Office director general Eli Groner has already formulated criteria for approving the import of workers, at this stage in unlimited numbers, to fill available positions in companies.
According to Waxe, however, the solution lies in education: investment in fostering a new generation of teachers in science and the technology professions; developing new programs for cultivating outstanding students in the senior classes of high schools and universities; an emphasis on cultivation of excellence in software, which he says will be the main growth engine in the sector; and connecting technology teachers to new developments worldwide and keeping them up-to-date.
"There's a lot to do," he says. "If 10,000 people graduate from the Technion Israel Institute of Technology or Ben Gurion University of the Negev tomorrow, they will find work at one of the Israeli high-tech companies or at a startup. There's work for all of them. The immigration from Russia made the Israeli high-tech industry grow, but in recent years, we have been seeing those workers leave it. Their biological clocks, like all of ours, unfortunately, don't stop. They are retiring.
"We asked (Russian President Vladimir, Y.A.) Putin to send us more like them, but he refused," Waxe says sarcastically.
Should we import foreign workers for high tech?
"First of all, let them take care of people over 45. Let them utilize the large pool of personnel we have in these workers. We have thousands of them. At any given time, 4,000-5,000 are registered for unemployment benefits at the government employment office, and there are thousands who are not registered. Before they start importing foreign workers, let them take those people, give them refresher courses, retrain them, and give them the tools that will enable them to take their place in the sector again.
"I agree that there are specialties in which there is a shortage of suitable personnel, and I don't rule out importing specialists from overseas, but not en masse, and not airlifts of thousands. If they want to import huge quantities of foreign workers, it's better to outsource the work to India or Ukraine. That's much more economic."
Waxe is 70 years old, and has seen a thing or two in his time. He understands the system, knows how it thinks, and is familiar with the forces motivating it. He himself was part of it for more than three decades: first in military service, until he was demobilized with the rank of brigadier general, after being IDF officer in charge of communications. During the first Gulf War, Israel was bombarded with dozens of Scud missiles launched from Iraq. The Arrow missile was the stuff of science fiction at the time, the Patriot missiles were a disappointment, and warning the home front was absolutely essential. The solution he devised at the time as a supplement to the national system of sirens was a silent radio station that broadcast only during a real alert, telling everyone to seek shelter in sealed rooms and put on their gas masks.
After leaving the army, he joined the public sector as Ministry of Communications director general. To this day, he is proud of the measures he took to open the sector to competition. Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) was selected to be the second cellular operator in competition with Pelephone Communications Ltd., the international calls market was opened to competition, and the Internet for home use was just getting underway.
Published by Globes [online], Israel business news - www.globes-online.com - on October 9, 2016
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