The Prerequisites for Technology Innovation

Abstract

This report discusses the prerequisites for growth through the formation or the strengthening of innovative high technology sector, especially in small to medium size countries. It is based on analysis of the Israeli Hi-Tech experience over the past fifteen years and by interviews with local industry professionals and entrepreneurs as well as variety of data sources. Emphasis was put on strategic aspects and system level considerations for public policy makers. We find that the prerequisites for viable and flourishing high technology sector comprise of the following major components: creating or leveraging on a local comparative advantage at the firm or sector level, the availability of professional high-risk capital, and reduced tangible and intangible international trade costs by forming a suitable habitat, infrastructure-wise. We recommend focusing first on the investors rather than on the entrepreneurs. We argue that the Israeli experience is valid for countries that are interested in setting up or strengthening their innovative high technology sector. The findings and conclusions are in some contradiction to the policies that are currently practiced by some of the governments and regional organizations around the world.