I have written previously on the impact of the dropping value of the dollar on Israeli startups (I encourage you to read it). When I boarded the plane back to Israel last week, a headline in one of the Hebrew newspapers caught my eye. $1 = 3.36 Shekels. The value of the dollar has dropped approximately 30% against the shekel in the last year!
Following on the cries of help from Israeli exporters, Governor of the Bank Of Israel Stanley Fisher jumped into the fray on Friday, buying $300 million of the Greenback to prop it up. Somehow, I do not think that will work. The US economy is in a precipitous decline. Actually, I would say that this is a global shifting of economic power away from the USA (but that is a topic for another post) to other economies.
The impact on the Israeli high tech scene is immediate. Today, it costs about 30,000 - 35,000 NIS per month to get a very good software engineer in Israel. That is now about $10,500 per month plus the 30% social benefits you pay here on top of that. An equivalent engineer in Silicon Valley is about $120,000 - $130,000, making it more expensive to hire engineering here than in Silicon Valley. And, engineers in Ohio are definitely less expensive.
What does this mean for Israeli high tech?
- There is an opportunity for Israel to do engineering price arbitrage in the Far East. Israel is no longer a place for price arbitrage on engineers.
- Israeli tech companies need to raise their game and lead on innovation. This is a fantastic place to invest because of the ingenuity, not the price. We need to now prove that in spades.
- The corollary is that we need bigger outcomes from start up companies. The bar has been raised vis a vis an investment in Silicon Valley. No longer will it cost less to build companies in Israel so we need bigger outcomes for these companies.
- We need to increase the number of software engineers in Israel. Companies and the government need to invest in incentives and retraining to create a larger supply of engineers. This investment will have many benefits. The larger the supply of engineers here, the less pricing pressure there will be on engineering salaries. Second, engineers are very highly paid now which makes them very competitive compensation-wise with lawyers and accountants and a very good way to raise the average national wage. Hopefully, someone will get this message across to the universities and Jewish mothers here who will stop pushing their children to be lawyers and accountants and instead push them into engineering. And, hopefully the government is listening. More engineers means more economic growth for Israel. More lawyers means more headaches and an overcrowded judicial system.
Stanley Fisher's dollar buying spree provides only momentary relief. The market forces are stronger than that. We need to get used to a strong shekel and a weak dollar and start planning accordingly both on a company-specific and a national level. The time is now. Let's not wait until it is too late.