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Thursday, December 30, 2010

Why our economy is worse off than it seems

You know how every time the economic statistics come out, I say that I don't see the growth in our economy and that I know people losing their jobs all over the place? Well, the explanation was actually reported here while I was away and I just saw it today.

For many years, Israelis got work from abroad - mainly from the US - by means of outsourcing. Now, our own success is coming back to haunt us. Israeli companies outsource to eastern Europe, India, China... and to the 'Palestinians.'
In the past three years, however, some have turned to Palestinian engineers and programmers. They are cheaper, ambitious, work in the same time zone, and — surprisingly to many Israelis — are remarkably similar to them.

"The cultural gap is much smaller than we would think," said Gai Anbar, chief executive of Comply, an Israeli start-up in this central Israeli town that develops software for global pharmaceutical companies like Merck and Teva.

At a previous job, he worked with engineers in India and eastern Europe, but found communication difficult. So in 2007, when he was looking to outsource work at his new start-up, he turned to Palestinian engineers. He said they speak like Israelis do — they are direct and uninhibited. Today, Comply employs four Palestinians.

Palestinian engineers have also warmed up to the idea. "I doubt you would find a company who says, 'I am closed for business'" to Israelis, said Ala Alaeddin, chairman of the Palestinian Information Technology Association.

If there is hesitation, it's in marketing Israeli products under a Palestinian name to tap into larger Arab markets off-limits to them. "We're looking for a partnership ... not one side benefits from the other side," Alaeddin said.

"We have a window of opportunity to demonstrate our skills," said Murad Tahboub, CEO of Asal Technologies, a Palestinian outsourcing company that works with Comply and a handful of other Israeli-based companies. "The more people know about us ... the more comfortable they will be in doing business with us."

This is easier said than done. Comply's office in Hod Hasharon is only about 20 miles (30 kilometers) from Asal Technologies in the West Bank city of Ramallah — but they are worlds apart.


Anbar says working with Palestinians is "doing something good for the world we are living in," but says the real reason he outsources to the West Bank is financial: He pays the outsourcing company about $4,000 a month per engineer, half the cost of outsourcing to an Israeli company.

While Indians or Chinese engineers cost even less, he said Palestinians are more loyal to his company than workers from distant countries — and have a dogged work ethic. Many gained experience working abroad, and stiff competition for coveted engineering jobs in the West Bank pushes those who have work to prove themselves, Tahboub said.

About 10 Israeli start-ups and international companies with centers in Israel have been outsourcing to the West Bank in the past three years, said Tova Scherr of Mercy Corps, an international aid group working to encourage these ventures. Scherr said visits by Israeli businessmen to Ramallah — with Israeli military permission — are becoming more common.

Networking giant Cisco says it was the first international corporation with research and development centers in Israel to begin outsourcing work to the West Bank. Israeli branches of Hewlett-Packard Co., Intel Corp. and Microsoft Corp. have followed Cisco's example and begun to outsource to the Palestinian territories this year, according to Mercy Corps.
So the companies are profitable, the shareholders are happy, but less Israelis are employed.

What could go wrong?

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At 2:03 AM, Blogger Bartender Cabbie said...

Sounds a bit like American firms outsourcing to Mexico. Sending jobs to enemies and potential enemies is not very bright in the long run.

At 4:34 AM, Anonymous Anonymous said...

The real question is this a positive or negative allowing non Israeli Arabs access and funds in Israel - I don't have the answer.


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