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Innovation lessons from Israel

N Madhavan | Updated on August 02, 2019 Published on August 01, 2019

Knowledge-driven Israel’s focus on intellectual capital is paying off. - REUTERS

How this tiny nation unleashed intellectual prowess to convert its challenges into competitive advantages

When the Global Innovation Index ranking was announced last week the expectations were high. India, many believed, would break into the top 50 league for the first time. It came close, ranked 52 among 130-odd economies. Nevertheless, its performance was commended as it topped the Central and South Asian region for the ninth consecutive year and its growth — from 81st rank in 2015 to 52nd this year — is the fastest by any major economy. What is also significant is that India continues to outperform on innovation relative to its gross domestic product (GDP).

However, the biggest news from the rankings this year (which saw Switzerland retaining its top position) was Israel breaking into the top 10 list — first by any country from the Northern Africa and West Asia region. It was not an easy journey for the ‘Startup Nation’ which has given the world innovations such as drip irrigation, USB drive, firewall (cyber security) and precision farming to name a few.

Israel, which came into being around the same time as India in 1948, has a lot of lessons to offer for its ally — especially when it comes to converting challenges into a competitive advantage. With a population of just 8.5 million, it has a very small domestic market.

Though located in an area that is home to earliest of civilisations, its enterprises cannot look at broadening its market by exporting to neighbouring countries as Israel is surrounded by enemies. That apart, it is endowed with very little natural resources including water. Its 22,000 square kilometre area is predominantly arid, fit to grow almost nothing.

Any other country with such adversity would have given up and become dependent on allies for survival. Not Israel. Its policy-makers decided early to invest in human intellectual capital and create a knowledge-based economy. By doing so they hoped that Israel could become home to technology focussed industries that do not depend on natural resources that their country sorely lacks while, at the same time, offering products that could be easily exported (despite an unfriendly neighbourhood) to meet the demand anywhere in the world.

Focus on education

They also had an unfailing faith that the intellectual prowess so developed will solve many of the country’s pressing challenges — be it water scarcity, agricultural development or national security.

They began by investing in a strong education system. Today, Israel spends 7 per cent of its GDP on education. Over 45 per cent of its adults complete tertiary education. Its investment in R&D is the highest in the world (4.2 per cent of its GDP) with a third of that going into universities.

The visionary policy-makers have been proved right. Israeli universities, today, top in patent applications in the US. Such is the quality of manpower that Israeli colleges produce, over 250 global companies including the likes of Facebook, Google, Apple, HP and Microsoft have set up their R&D labs in the country which also boasts one of the highest concentration of Nobel laureates on earth.

That apart, Israel has the largest number of hi-tech startups per capita than any other country in the world. Tel Aviv houses the second largest startup eco-system after Silicon Valley. Not surprising that, hi-tech exports accounts for 45 per cent of its overall exports. Its Yozma venture funding plan and technological incubator programme are case studies across the world. Not many know that after the US and China, Israeli companies have the most representation in NASDAQ, with over 250 companies IPOing on the platform since 1980s.

These startups have indeed solved the country’s pressing problems. Thanks to their work in membrane technology, Israel has efficiently used desalination to transform itself from world’s driest country to one with surplus water. It has become a leader in desert agriculture thanks to drip irrigation and precision farming. Its large olive and dates orchards (not to mention the exports) stand testimony to it.

Tech-heavy security

To tackle the security issue that comes from being surrounded by enemies and constantly fighting terrorism, the country invested heavily in cutting-edge technologies. Today, the Israeli military is a national incubator and a significant catalyst for innovation. Stories about the famed Intelligence Corps Unit 8200 is legendary.

With compulsory conscription every youth, based on talent and aptitude, gets exposed to the latest technology that the military uses. That apart, they are taught to work as a team, solve problems in a structured and disciplined manner. These qualities help them to come out and build successful enterprises. Check Point, the world’s largest cyber security company, is one such organisation. In fact, Israel controls as much as 10 per cent of the global cyber security market.

Then there is the culture part. Forced to run, hide and fight in the past, Jews are natural risk-takers — an essential quality to become an entrepreneur.

Faced with adversities, Israeli’s are never happy with status quo and constantly try to improve things. This has given birth to a trait they call ‘chutzpah’. Failure is accepted in the society and you are encouraged to try again. It helps that mentoring is a deeply entrenched habit.

India too has its share of challenges when it comes to food, energy, water and national security. It badly needs to enhance sustainability and take healthcare to every nook and corner of the country. All of this needs to be done at a low cost.

Like Israel, India needs to invest heavily in education and R&D. Our investment in R&D is a paltry 0.7 per cent of GDP. Very little of this goes to universities considering that a bulk of public R&D goes into space, energy and defence sectors. China, another large economy, has managed to up its R&D investment from 1.3 per cent in 2006 to 2.18 per cent in 2018. So size is not an issue here. It is just the intent.

Many experts have faulted India’s innovation that focusses on getting products and services to people at an affordable cost, rather than aiming for global leadership. They are wrong. Solving India’s challenge will eventually open opportunities for Indian enterprises globally. That is exactly what Israel did.

Published on August 01, 2019
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