Israel’s ‘startup boom’ has grown unfettered for decades. Its emergence as a nation of opportunity for business creation and innovation came not by accident, but through careful planning, tendency to think ‘outside the box’ and constant strive towards execution. All of which have been accomplished due to ability of Israel to support and grow qualified and innovative individuals. After years of steady growth, though, the country now faces some challenges to its positioning in the technology sector. Shortages in their high-tech labor pool and a need for companies to grow more within the country are forcing adjustments. How Israel navigates these concerns will have a significant impact on the year ahead for high-tech companies.
Challenges in Human Capital
One significant challenge area lies in the need for more qualified personnel. Israel trains thousands of individuals through compulsory Israel Defense Forces service, but tech sector growth has created a need for much more. Scientific and mathematical degrees earned have leveled off; the proportion of scientific and technical degrees among overall college degrees has dropped below 10 percent in recent years.
As a result, the supply is not keeping up with the continued demand for more workers in this area. Current trends suggest a shortage of 10,000 engineers and programmers in the coming decade. After 13 years of continued growth in Israel’s economy, investment and national leadership will need to focus on reversing these trends to develop a labor pool that keeps up with the appetite for national startup innovation.
Need for Companies to Mature
Another issue for those looking to invest in Israel to consider is the increasing exit costs for businesses. New regulation and tax burdens now create incentives for companies to develop further before exiting the economy. Where short-term investments and profitable exit strategies once carried the day, your investment focus now should move toward a longer plan, increasing profitability over years rather than months. The government is developing plans to create new growth paths; as with any maturing nation, these will work to marry growth to stability. In the coming year, those who invest for the long term will find greater high-tech opportunities.
As the regulatory and taxation systems change in Israel, you need experienced legal and consulting assistance to guide your strategy.