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Home > Business > Columnists > Guest Column > T N Ninan


The IT growth story: India vs Israel

May 05, 2007

India's software industry has turned in another stellar quarter's numbers, and seems well on its way to delivering the Nasscom-McKinsey forecast of $60 billion worth of export of software and IT-enabled services by the end of the decade.

The way those numbers are calculated have come into question recently; but while there may be technical defects with the method of calculation, there is no denying that they reflect accurately the economic benefit that is being captured.

This amazing record is further burnished by the many non-financial attributes of the leading companies in the field, and the personal qualities of the people who have established these companies, and lead them.

But it takes a quick visit to Israel to put these signal achievements in perspective. At dinner in Tel Aviv with the man who advises Israel's prime minister on economic policy, the subtle point is made to us that those armies of people walking every morning into the campuses of Infosys and Wipro are not in the same category as the large numbers of high-tech entrepreneurs being turned out by Israel.

Among the three "I's" of the tech world (India, Israel and Ireland), Israel's record is certainly the more impressive when you realise that more than 70 Israeli companies are listed on Nasdaq - next only to the US and Canada in the country rankings.

Israel has no fewer than 3,000 high-tech companies, supported by a flourishing venture capital industry that buys into garage-scale enterprises and takes them public once they have reached a certain scale. Last year alone saw foreign investors coughing up $10 billion to buy into just 30 Israeli tech firms.

Also supporting this eco-system are educational institutes that seem to be more than a match for our institutes of technology. Just one of them, Technion, has more students (13,000) than all our IITs put together, and there are half a dozen other institutes in the country, though on a smaller scale.

This is part of an economy-wide story, because more than a third of Israel's total exports in some years have come from the high-tech area, and 20 per cent of the revenue earned by the electronics industry is ploughed back into R&D - some of which is a spin-off from the country's massive investment in defence research.

It can be argued, with reason, that India's software industry is geared to (and therefore more in tune with) our resource endowments- lots of people who will work for a fraction of the value they add in dollar markets, providing services that other countries cannot offer because they lack either the population strength or the engineering education base or the knowledge of English or the low costs, or a combination of these.

Israel, in comparison, is a much wealthier society with barely half of Bangalore's population, so it should logically focus on developing products than providing manpower-intensive services, and that is what it has done.

But when you are told that firms in Israel have developed the voice over internet protocol (VoIP), Intel's multi-core processor, the cellular telephone and most of Microsoft's Windows NT operating system, and that the world's electronics giants have invested much more in Israel than in India, Bangalore's very creditable record begins to pale.

To be sure, Indian companies and the Indian branches of international firms have been doing more high-end work in recent years and helping to develop cutting-edge technologies useful for a range of industries. But for every product development claim that you can make on behalf of India, Israel can perhaps make a matching if not superior claim.

In some ways, this comparison is unfair to India because it is being made in the area where Israel has been strong, and not where India's companies shine. It is also true that Israeli entrepreneurs and companies do not seem to be able to work on the massive scale (employee strength approaching 100,000, for instance) that Indian companies have mastered.

So each country's IT industry has its own strengths. But when you wander further afield, into bio-tech and other high-tech areas, there is no question about which country is achieving more, and which country should be modest about the claims it makes.


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