The perceived bottlenecks in developing science‐based industries in Israel1
Authors: Galai Dan 
Published: May 2007

Abstract

The study, which is based on a survey, identifies the barriers to developing and expanding science‐based industries in Israel as perceived by managers in Israeli technological industries. The differences in perception among managers from different industries and between chief executives and their subordinates are investigated.

The main obstacles are attributed to the lack of economies of scale, especially in marketing, and the shortage of entrepreneurs. Financial issues got relatively low ranking.

The results, while suggestive, have interesting implications for both government officials and business executives.

SUMMARY AND CONCLUSIONS

The most striking result of the survey is the relatively lowerranking of the financial issues as a potential barrier to the development and expansion of potential science‐based industries in Israel. While government aid is mainly financial, and maybe for that reason, the executives from the relevant industries believe the bottlenecks are somewhere else.

The results indicate that the existing scientific and technological infrastructure can support much expanded in‐ dustrial activity. This potential can, in addition, be expanded by strengthening the relationship between the industries and the institutions of higher learning.

The main obstacles are the lack of economies of scale, especially in marketing, and the shortage of entrepreneurs. The marketing problems can be partially resolved by coordinating the efforts of a few companies in the same area, for example in advertising, services, etc. Another alternative is to enter into joint ventures with companies already located in the foreign markets. The government can help by subsidizing marketing efforts in a similar way to the existing aid to R & D. It can also try to attract joint ventures through special tax laws that would eliminate the penalties on foreign firms due to the local high rate of inflation.

One way to increase the supply of entrepreneurs is by allowing them a higher financial reward, which can be contingent on their success. In the USA, for example, it is customary to motivate the chief executives through stock options whose value depends on the success of the firm. The government can amend the tax laws to ensure the entrepreneurs an appropriate compen'sation for their efforts. With the major revision of the tax laws in Israel in 1975, stock options to executives are considered as taxable income when received. This is even more important if the solution to the perceived shortage is to import entrepreneurs.

The results also illuminate some differences of opinion between the general managers and their subordinates and among executives from different industries. However, it should be remembered that the sample was rather small, and therefore the statistical tests for the significance of the difference would be rather weak. It is planned to expand the survey in the future in order to establish the validity of some of the conclusions which were reached above. In addition, future research should also determine whether all the perceived problems are real.

The results, while suggestive, have interesting implications for both government officials and business executives. Government officials should look at a broad spectrum of alternatives to encourage industrial R & D activity in order to find out the optimal use for the marginal Israeli pound spent by the government for that purpose. It may be the case that different alternatives should be pursued to encourage R & D in different industries. Business executives should analyze the issues with the functional managers and decide which factors are under their control and which are exogenous. Alternatives for action should be specified only after identifying the major barriers that affect the company and its industry.