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A High-Tech Job Boost for Israel's Arabs

Israeli Arabs have never had it easy getting jobs in the country's high-tech industry. Even when times were booming and work was plentiful, Arab engineers found it difficult—and in many cases impossible—to get their foot in the door because Israel's high-tech industry is dominated by a Jewish old-boy network, where military service and connections play a key role in getting hired.

Arab engineers are at a major disadvantage since few serve in the army or have other entrÉes to the country's high-tech elite. After completing their university degrees, many are thus forced to take positions in professions such as teaching or go into family businesses. But their plight may just be starting to improve with the success of Galil Software, a rare Israeli Arab high-tech startup.

The idea was the initiative of a Canadian Jew who immigrated to Israel in the mid-1990s and went to work for Comverse Technologies (CMVT), a leading Israeli telecommunications company. "It amazed me over the years that the huge potential in the Arab sector was going untapped," says Jimmy Levy, a former senior executive at Tel Aviv's Comverse. There are no official statistics but estimates put the number of Israeli Arabs with degrees in relevant technology fields at 15,000 to 20,000. While the Arab minority makes up 20% of the Jewish state's population of 7.5 million, Arabs constitute fewer than 2% of the workers in Israel's high-tech industry.

CEO's Impressive Credentials

Levy persuaded a group of high-powered Israeli entrepreneurs, including former Comverse Chief Executive Zeev Bregman, to back him in setting up Galil, which offers custom software development and systems integration. So far, investors have put $2 million into the privately held company.

Levy then recruited Inas Said, an Israeli Arab, to be CEO of the new venture. The 43-year-old electrical engineer had an impressive rÉsumÉ: After studying in Israel at the Technion Israel Institute of Technology, he left to work in Germany and in the U.S. for telecommunications giants Ericsson (ERIC) and Nokia (NOK), and later, for continuous-computing specialist Stratus Technologies. Said returned to Israel in 2004 to be closer to his family and was hired by ECI Telecom, where he was one of a handful of Arab employees out of a total workforce of several thousand.

Lured by the chance to establish a new company, Said set up shop in March 2008 in Nazareth. Located just a block away from the modern Church of the Annunciation—built on the site where the angel Gabriel is said to have told Mary she would bear God's son—the startup now employs 45 engineers. More than half of them weren't previously employed in the field for which they had been trained. Galil is already planning to double its workforce by the end of the year.

That's no small feat at a time when the local high-tech industry is laying off workers as the global economic downturn takes a heavy toll on the sector. Galil is focusing initially on grabbing outsourced jobs from other Israeli firms that might otherwise send work to India or other offshore hubs to reduce development costs. Salaries of engineers in India are typically 60% to 70% lower than in Israel.

State Subsidy

Said thinks he can make the math work in his favor. "When you take into account all the overhead involved in doing development abroad, we believe our cost is just slightly higher than India's," he says. The calculus relies on the lower salary levels typical in northern Israel vs. the Tel Aviv region, where much of Israel's high-tech sector is based. In addition, the Israeli government grants a subsidy to companies located in underdeveloped areas. That alone reduces costs by about 35%.

But salaries are only part of the equation. "Our code quality is crucial for product development and we couldn't compromise on this," says Ran Cohen, chief software engineer at Mobixell Networks, a developer of mobile multimedia technology based in the northern Tel Aviv suburb of Ra'anana that has outsourced work to Galil. Initially, Mobixell looked at offshore options in India, China, and Ukraine to cut its development costs. But Cohen feared that the distance and quality issues made going abroad too risky, especially given past experiences with Indian engineering that were less than positive.

After checking out Galil, Mobixell decided to try out the local provider, less than 100 kilometers (60 miles) away from Mobixell's headquarters. Cohen now spends two days a week commuting to Nazareth and three back at the home office instead of traveling to India or another foreign destination to oversee development. Mobixell is so pleased with the results that it is planning to double the amount of work it sends to Galil.

Other local customers include ECI Telecom, Ra'anana-based grid-computing specialists Voltaire (VOLT), and the Israeli subsidiary of GE Healthcare (GE). Galil, which doesn't disclose its financial results, says it expects to do "several million dollars" in business in 2009, its first full year of operations.

A Boost for Peace and Understanding

So far, Galil has focused exclusively on the local high-tech industry. But Said is setting his sights on partnering with major American and European companies looking to expand in the Middle East by leveraging Galil's unique combination of Israeli high-tech experience and Arabic-language expertise.

Within three to four years he hopes to quadruple the company's workforce—providing a boost not only to underemployed Arab engineers but also to peace and understanding. It's not the first such attempt to bridge the cultural divide: Jerusalem software startup Ghost has taken the notion even further by employing dozens of Palestinian engineers at a lab in Ramallah in the occupied West Bank.

Said readily admits that his Jewish investors were crucial in opening the doors to local high-tech companies, helping him compete for deals and bringing in funds for the new venture. But initial success now has allowed him to go out on his own and drum up business based on his established track record. As for his backers, they hope to repeat their success at Galil with additional investments in the Israeli Arab sector. Levy already is trying to raise $20 million to $25 million from local and foreign investors for his Al Bawader Fund, whose name means "early sign" in Arabic. The money will be earmarked for investment in 10 to 12 companies in high tech and other areas.

The Israeli government also is getting into the act with plans to allocate $20 million in matching funds for investments in Israeli Arab companies. The emerging interest could help bridge the gap between the country's Jewish majority and the Arab minority after decades of neglect and mistrust, while providing jobs for thousands of qualified professionals who have had few options up until now.

Sandler is a correspondent for BusinessWeek in Jerusalem .

Sandler is a correspondent for BusinessWeek in Jerusalem.

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