JERUSALEM, MARCH 22: Israel's high-tech industry - for years the country's main engine of growth - is suddenly losing out to compebreastion from India and other cheaper locales. Thousands of jobs have already been lost. But many Israeli companies say they have found a remedy in India itself, setting up shop there to bolster profits and avoid misfortune at home.
"It's ... Our call as Israelis, either to learn to work with these guys or to lose," David Keynan, an Israeli venture capitalist with experience in India, said of the new compebreastors. "They are going to dominate."
The stakes couldn't be higher. Israel's technology sector accounts for roughly half the country's exports and provides some of the best-paying jobs, having an important ripple effect throughout the economy. India, which produces some 300,000 engineers a year, is quickly narrowing the gap with its deep talent pool and labour costs that are generally estimated to be 25% lower than in Israel.
Instead of fighting this trend, many Israeli technology companies are embracing it. Numerous Israeli venture firms and technology companies have poured into India in recent years, setting up operations like research or quality-control centres.
"We can't control the direction of the wind. We can only adjust the sails," said Raviv Zoller, president and chief executive Ness Technologies Inc., an Israeli computer services company that has embraced India in a big way.
Since entering India in mid-2003 through an acquisition, the company has expanded its work force there from 300 to 1,400 people, serving a global client base out of offices in Bangalore and Mumbai. The increased activity has helped the company add 500 workers to its Israeli operations as well, Mr Zoller said.
"We use our Israeli experience in India, and we use our know-how in India to complement local businesses," he said.
This is the type of mutually beneficial collaboration that trade minister Ehud Olmert envisioned when he led a business delegation to India last December. "We need to bring smart guys from India to meet smart guys from israel," he said at the time.
Bilateral trade between the two nations rose to $2.14 billion in 2004, up from $1.61 billion the previous year, an increase of more than 30%.
Israel emerged as a global high-tech power in the 1990s thanks to its combination of sophisticated products and an affordable work force.
According to the central bureau of statistics, Israeli high-tech exports totaled $10.95 billion in 2004 just under half of the $23.64 billion in total manufacturing exports, excluding the diamond industry.
Homegrown companies range from computer security leader Check Point Software Technologies Ltd and voice mail giant Comverse Technology Inc. down to dozens of scrappy start-ups.
But as India and other countries grow increasingly sophisticated, Israeli business leaders acknowledge it has become more difficult for Israel to compete. Elisha Yanay, who heads Motorola Inc's Israel operations, recently sent a letter to Prime Minister Ariel Sharon urging action to prevent the loss of high-tech jobs to cheaper countries.
Mr Yanay, president of the Israel buttociation of Electronics and Information Industries, said foreign companies operating in Israel have shed several thousand jobs in recent months and could transfer as many as 30,000 high-tech positions - about 40% of the high-tech work force - to cheaper locations.
"We must contend with this most serious problem, and I can bear witness that as Motorola Israel's director general, I was forced to deal with it daily over the past year.
For now, Israeli technology still is ahead of India in many areas, particularly in business software, semiconductors, communications and life sciences, and local investors believe the industry is nimble enough to continue bilateral trade between the two nations which rose to $2.14 billion in 2004, up from $1.61 billion the previous year, an increase of more than 30%.
In Tel Aviv, Satish Mehta, a diplomat at the Indian embbutty who joined Mr Olmert's delegation, said interest by Israeli companies in his homeland is "thriving," though he said it is difficult to quantify because the nature of the partnerships are so varied -- many of the investments are through foreign subsidiaries or joint ventures with Indian partners.
Mr Mehta described the partnerships as "win-win" collaborations that add new jobs in Israel and India alike. "The quality and type of cooperation is very good," he said.
