Israel no model for NZ

Israel is not a high-tech model for New Zealand or any other country, says its chief IT architect, Yigal Erlich.

Israel is not a high-tech model for New Zealand or any other country, says its chief IT architect, Yigal Erlich.

We must find our own way, consistent with our own cultural and business environment, Erlich says, speaking at a recent gathering in Wellington.

The Israeli model has undoubtedly been a success - at least in terms of skilled-job generation, company formation and interest from international investors. But research seems lacking on whether the companies formed are successful in monetary terms.

"I'm sure there is research on that topic, but none that I have seen," says Erlich, former chief scientist in Israel's department of industry, and currently president of Yozma, a company which sets up high-tech venture capital funds. Erlich suggests that a large majority of the companies are not yet successful in terms of profit.

The main drive for Israel's version of a knowledge economy came from a massive immigration of skilled Jewish people from Russia in the early 90s, driven by a wish to return to their traditional "homeland". Jobs had to be found or created for them.

As several people at the Wellington seminar pointed out, New Zealand faces the reverse problem - getting our technologically skilled people to stay here. One jaundiced individual suggested New Zealand's present environment had more in common with Soviet Russia than with Israel.

One main element of Israel's strategy has been to establish a fund to found "incubators" that help people with bright ideas to become a commercial success.

There are now 22 active incubators, supporting more than 800 projects. The incubators provide government funding of $US300,000 over two years for each project. After this, the companies must have a product and a business plan capable of being taken up by a private sponsor, or they die.

Government, through the department of industry's Chief Scientist's Office, also funds half of selected companies' research and development directly.

Asked about policies for stopping successful developers from emigrating again or transferring their technology out of Israel, Erlich says there are strictures in the programmes to prevent that. "You cannot sell the technology or transfer it without the permission of the Chief Scientist's Office. If you sell your company, the buyer must agree to keep [a substantial part of its operations] in Israel."

As another part of the plan to encourage high-tech industry, Erlich's company Yozma (Hebrew for "initiative") virtually founded the concept of venture capital in Israel. It created 10 separate funds, each 40% financed by government, with the help of private investors. Initially most of these were Israeli, but today 80% of the funding comes from overseas sources. These include not only traditional high-tech

corporate investors, but insurance companies and pension funds from non-technology companies.

There are now more than 60 VC companies in Israel managing more than $US5b in funds, "and the market is self-sustaining", he says. In 1990, the VC market in Israel was a classic case of market failure, Erlich says. Someone had to intervene, and the government picked up the ball.

This comment naturally brought murmurs of agreement from the audience. "Whether government or private industry; someone has to back

the start of [such incentives] here," says Neil Richardson, chairman of the Foundation for

Research, Science and Technology. The most

appropriate solution, he suggests, would be for the two to do it in association, but government incentives for private industry to get into the game would be helpful.

Venture capital company Morel & Co director Jenny Morel points out, however, that her own company has raised $27m from private sources and invested in five local high-tech companies. "What's stopping people doing what we did?"

Some sceptics ascribe the success of Israel's approach to support from wealthy Jews in the US with an emotional attachment to their homeland. There may have been some of that element to begin with, says Erlich, "but now investors are not there because of emotion, but because of major business opportunity."

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