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Uzi Mokadi is deputy CEO for business development at Cyber-Ark Software, an Israeli start-up for the development of information security products on the Internet, which spread its wings and relocated its management and marketing operation to Boston. Mokadi defines himself and his co-founder, Alon Cohen, as “strongly Zionist”.

“As Zionists, we decided that our company would be registered in Israel, in spite of continuous pressure on the part of lawyers and accountants”, Mokadi says. “This is important to us. We took a decision in principle to the effect that we would never transfer our R&D activity to anywhere outside Israel”.

But, in terms of US management, Mokadi seeks what he terms a “hybrid”, a bi-cultural mixed breed, an Israeli-American high-tech entity, which seamlessly blends the features of good managers from both countries. The most sought-after candidate is one who will slide smoothly into his seat, with no discordant notes, in the boardrooms in Herzliya Pituach or in Boston, and be able to talk with equal enthusiasm about both the New England Patriots, the local football team, and Maccabi Tel Aviv (Israel’s leading basketball team).

‘Impossible’ is a relative thing

Amnon Shoham and Dorin Miller, of Cedar (Israel) Financial Advisors, of Needham, near Boston, are aware of the problematic nature of managing Israeli-American companies. “A good start-up company needs an Israeli management that understands Israel, but it’s sometimes difficult for Israelis to understand America”, says Shoham, who formerly served as a managing partner of Star Ventures in Israel. “I need someone who will talk Hebrew to Israelis and American to Americans. There aren’t many like that available. When negotiations are in full swing and an Israeli states, ‘this is impossible’, he’s signalling that this is his starting position. When an American says it, he means it. And that’s just one mine in the communications field”.

Shoham maintains that the reason why Scitex founder Efi Arazi failed so spectacularly was that he was resolved to bring an American manager into the company’s management. The manager was unable to bridge the communications gap. At present, all Israeli companies on the NASDAQ are managed by Israelis, Shoham notes.

Miller says that a slowly emerging trend is perceptible, whereby “a critical mass of Israelis who are capable of functioning successfully in both worlds – of constituting a bridge between two cultures” is being created. Shoham and Miller refrain from saying so, but they themselves are excellent examples of this critical mass.

“Cedar (which manages 175 million dollars worth of capital – R.D.) was structured in a certain manner due to the American background that Amnon and I share”, Miller says. “This background led us to the decision that we would set up a venture capital fund in the proper – namely the American – way”. One characteristic feature of the proper way, according to them, is in-depth involvement on the part of the fund in the management of the start-up companies in which it decides to invest, in an effort to transfer the technological idea that originated in Israel into the US market. One feature is the recognition that such a fund cannot be managed in Israel, remote from the target market. “

In not a few Israeli companies, key positions in the United States are given to Israelis who hold a US passport, obtained following years of studying or teaching at MIT, Wharton or Berkley, or being employed by one or more of the hundreds of high-tech companies in California, Massachusetts or Texas.

US passport required

“It’s simply a plus”, “Globes” heard, from a manager who asked to remain nameless. “First of all, think of how fast you sail through the lines of incoming travellers from Boston-Logan, or JFK, with a US passport. Secondly, it shows that you know your way around in the country where your largest market is located. As far as I am concerned, a person who knows two languages is preferable to someone who knows only one language. The same can also be applied to passports”.

In the eyes of many companies, a dual passport-holder, with proven bi-national business talents, is the ideal choice for managing their American activity, or, at least, managing the departments that maintain direct contact with Americans. In the absence of such a person, Cyber-Ark and other Israeli companies show a distinct preference for a born-and-bred American, even though, lately, such people are not always available.

According to Mokadi, “For sales, it was obvious to us that we wanted an American team. We have an American deputy manager in charge of sales. His subordinates are Americans. We will want to recruit an American finance manager because of the connection with the capital markets. The deputy general manager for indirect sales should also be American, due to the connection with distributors”.

But in the case of Cyber Ark (and many others), the general manager is Israeli, whether he resides in Israel or in the United States. He is a trans-Atlantic manager, who accumulates tens of thousands of kilometers annually in exhausting flights between Ben-Gurion Airport and Boston Logan (or San Francisco International), in an effort to bridge the unavoidable gaps that arise when managing a bi-national company.

“Ever since we founded the company, the principle that we’d sell in the United States has been built into our business plan”, says Mokadi, a Tel Aviv University trained lawyer, whose career switched onto the technological track. “In Israel we have a local sales entity and a research and development center, but the management has relocated to the United States, with the CEO shuttling back and forth between the two countries. He wants to be connected to Israel. By staying in Boston, he’s able to channel feedback from clients in the United States to R&D in Israel”.

Daunting situation

Cyber-Ark’s management model is by no means exceptional. “Israeli start-up companies frequently look for American managers to head their US branch, while leaving the R&D centers in Israel”, the Wall Street Journal wrote recently. “But in view of the ongoing violence in the Middle East, Israeli companies are encountering difficulties in their efforts to recruit new American managers, even though the managers will obviously be working in the United States and not in Israel”.

Employment with an Israeli company is a deterrent factor for certain people, who entertain misgivings about travelling to Israel, according to Lisa Hooker, a managing partner in the Ray and Berndtson manpower recruitment company of New York. She is currently looking for American managers to run the US offices of six Israeli companies. In the past two years, she has found eight such managers.

It would seem that the rising demand for professional managerial personnel is driving Israeli high-tech companies at the start of their career in the direction of Boston. Not that they have switched off the lights in Silicon Valley, but Boston and its surrounding townships, all along the corridor of the famous Route 128, have made a name for themselves, especially in recent years, as a high-tech center in which Israeli companies find it easy to take their first steps, due, for one thing, to the availability of high-tech managers with an Israeli background or Israeli experience.

“Boston is a very friendly town for Israelis, with a wide network of Israeli concerns that are prepared to advise and also provide practical assistance”, Soffer claims. It is his job to try and ease the transition of Israeli companies as they open offices in Boston. Soffer works out of a Spartan office (with two assistants, three rooms, no coffee machi.e) on the tenth floor of a grey office building in the Back Bay area, not far from the center of town .

Mokadi remarks that Boston has a strong infrastructure. There is, he maintains, a tremendous volume of inter-company mutual assistance. Cooperative ventures go into execution due to the networking genius of the Israeli technology community. Israelis enjoy good access to decision makers in technological companies, since key positions in numerous companies are likewise manned by Israelis.

BATM Advanced Communications is a totally different type of company than Cyber-Ark, but both are of the opinion that Boston is an ideal city in which to do business in the United States. In contrast to Cyber-Ark and most Israeli companies in that city, BATM came to Boston, ripe and ready, fresh from Europe, a known, respected company, not just a starving start-up chasing after venture capital firms.

BATM CEO Dr. Zvi Marom says he decided to base the company in Europe “at a time when it wasn’t a thing that was done, and wasn’t so favorably viewed in the eyes of investment firms in Israel… but I’m not the sort to get excited about what is or isn’t in vogue”.

The Bostonian experience of BATM, manufacturer of Internet switching systems, is different from that of Israeli start-ups, which regard the city as a paradise for a newly founded company. “There are two places in which high-tech activity is mainly concentrated – they’re Silicon Valley and Boston; we examined them both and decided that Boston is better”, Marom says.

Less greed

According to Marom, “There may be a sense of innovation in the air in California, making it a classic locale for start-ups, but in Boston there are more major equipment manufacturers, from Nortel to Lucent, and that’s important for us”.

In Marom’s opinion, however, Boston’s big advantage in comparison to Silicon Valley is its labor force, which, he believes, has not yet been affected by Californian greed. “The tremendous amounts of money channelled into start-ups created disloyalty on the part of employees in the San Francisco area. Keeping one’s staff became a difficult job. Salaries and expense accounts started to expand exponentially. I found that an engineer in Silicon Valley remained, on average, eight months in one job. Boston is no longer either Utah or Georgia, but in terms of employee loyalty, it’s in a better situation”.

Soffer admits that the harsh, snowbound New England winters are liable to darken life for people of Middle Eastern origins for several months of the year. But this drawback is insignificant compared to the small time difference between the East Coast and Israel – a mere seven hours as against the ten-hour difference between Silicon Valley and Tel-Aviv. “A reasonable time difference opens a window for joint endeavors between the Boston office and the Israeli office, during hours that don’t necessitate an excessive departure from normal office hours at either end”, Soffer explains.

Israeli identity is multi-faceted

Seventy high tech and biotech companies that are either Israeli or are linked to Israel are registered with the consul for economic affairs in Boston. There are another thirty – or possibly more – Israeli companies that have not officially announced their presence in Boston.

The term “linked with Israel” is broad: Israeli companies that registered in the United States as a gesture of friendship towards their investors; companies that are not under Israeli ownership but that have an R&D center in Israel; and American companies with a senior Israeli team. In many instances, the US arm of an Israeli controlled company will have not more than two or three Israeli employees among dozens of local people. A stranger entering the premises would never know he was on Israeli territory.

The new office of NUR America, manufacturer of equipment for making gigantic signboards, located in Newton near Boston, does not make one think of Israel at all. “My philosophy is to take Americans”, says Shlomo Sagiv, CEO and president of NUR America. “Apart from the controller, there are only a handful of Israelis here, and they are here by chance. In my opinion, a technician isn’t just a person who knows how to repair a machine; he should also be able to communicate with the customer. That’s also my approach to sales management”.

There are stories of Israeli managers in Israeli companies who welcome visitors from Israel in perfect English to the company’s offices, totally ignoring overtures in Hebrew on the part of their guests. It is only behind closed doors, in his office, that the manager will explain that it is against company policy to have Hebrew spoken in open areas of the office.

Mokadi, currently taking his first steps in Boston, says experienced people have warned him against speaking Hebrew in the company’s corridors “in order not to create the feeling of a company within a company”.

In other instances, a company may be under American control, but its technological base and its professional nucleus are Israeli, and its corridors resound with the sounds of Hebrew.

EMC of Boston – the world’s largest data storage company – could serve as an example of a non-Israeli company with a distinctly Israeli flavor. It maintains an R&D center in Israel (and one in Ireland). Its chief technology officer is an Israeli. Numerous Israeli engineers work for the company at both senior and middle level echelons, and its technological philosophy has been imported from Israel.

The Israeli identity of EMC

The Israeli identity of EMC, which contributes to America’s Gross Domestic Product, expresses the blurring of distinctions based on nationalistic definitions in the reality of the high-tech world. According to Soffer, this is one example of an Israeli mistake. EMC’s gain is Israel’s loss, since the Israeli group constituting the company’s technological infrastructure did make an attempt to interest Israeli companies in its ideas and projects, before EMC took a gamble on it, but met with scant success on its own home ground. EMC’s shares have since appreciated thousands of percentage points.

Hillel Bachrach was co-founder of ESC Medical Systems, which manufactures laser instruments for dermatological treatments, together with physicist Dr. Shimon Eckhouse, the company’s CEO and chairman. According to Bachrach, attempts to define companies on the basis of their nationality, or that of their employees, are futile. What is so important about it anyway, he wonders. Every company must follow its market. If BATM had remained in Israel, nobody but Bezeq would have known about it, and it would long since have vanished.

Bachrach, who, together with Eckhouse, was ousted from ESC in an acrimonious, headline-generating confrontation, and has been living in Boston for the past twenty-five years, may well be the perfect hybrid. He thinks American and feels Israeli. “Israel is without a doubt the country for ideas”, he says. “All good ideas come from there. But I don’t doubt that if Israel were to annul its taxation incentives, everybody would come over here. The incentives help to keep the R&D centres in Israel. That’s sufficient. The other things need to be done here, because Israelis don’t understand what marketing means”.

An examination of data on record at the office of the Israeli Consul for Economic Affairs shows that companies such as MeetU, Charlotte’s Web, Contech Medical, Elron Software, Enigma, NUR America, Indigo America and Scitex America have registered with the consul. Some of these are in the embryonic stage and some are fully matured companies, some are past their peak, and others are still clambering towards it. They include software, life sciences, and printing companies.

As Soffer sees it, Israeli professionals, despite the significant slowdown in the US economy, are still showing a far stronger tendency to converge, en masse, on Boston (and, very likely, on Silicon Valley, too), than to move in the opposite direction.

“Israelis would like to return to Israel, but there is nowhere to return to”, he says. “A person who has held a senior position in a mammoth technological company in the United States will be hard put to find a parallel situation in Israel. What’s the next stage in the professional life of an Israeli engineer who has reached high managerial rank in the United States? Almost certainly, it will be to found a start-up company, or a venture capital fund. But the best place for starting such initiatives is in the United States, not in Israel”.

The upshot is that Israeli high-tech professionals constitute a significant and outstanding minority in Boston’s large high-tech community. Soffer estimates their number at several thousands, but there is no way to arrive at a precise head-count, any more than one can establish exactly how many Israelis are living in the United States altogether.

Barak Levin, of Atlanta, Georgia, is the manager of Hamakom.com(Hamakom is Hebrew for “the place”), a Hebrew-language Internet site designed for Israelis in North America. According to Levin, estimates as to the total number of Israelis in the United States range from 150,000 to 600,000, “depending who you ask”. The low estimates derive from the Israeli consulates, which base their figures on lists of Israelis in their areas. Naturally, nobody knows how many Israelis have not bothered to register.

According to Levin, who uses his Internet site in support of the initiative for giving Israeli residents overseas the right to vote in Israeli elections, there has been an increase in the number of Israeli high-tech personnel relocating to the United States in recent years. He maintains that this increase reflects the gloomy mood in Israel. As proof, he cites the increase in the number of Israelis seeking to register for the Green Card lottery, an annual event staged by the US administration. Hamakom.com assists Israelis wishing to take part in this lottery.

And while high-tech professionals, needless to say, are not in need of lotteries in order to obtain US work permits, they are just as affected by Israel’s security distress as the rest of the country’s citizens. There are some estimates according to which the ratio of high tech professionals leaving Israel is disproportionately high compared to the percentage of all Israelis who leave, due to the relative ease with which they are able to find their way in the United States. This state of affairs has changed somewhat, in recent months, due to the waves of layoffs in American high-tech industries; but not to any significant extent.

The office of the Israeli Consul for Economic Affairs in Boston, and the refugees

“Israeli companies continue to send employees to their centers in the United States, and these employees remain after completing their term of employment with the company”, Soffer says. “Do you know how many Scitex refugees I see? Large numbers of high-tech people are trying to find a place in Israeli companies in Boston. Some of them are local Israelis, who are looking for a new job, and some come to me straight from Israel. Dot.com companies are crashing right and left, including in the United States, but when an Israeli high-tech worker finds himself out of a job, he promptly pulls strings to help him find work in the United States”.

Soffer admits that the crash of the NASDAQ produced a significant decrease in the demand for personnel in technological sectors. But demand in the Boston region, he says, is still better than in Israel, even if not much better. If, in the past, companies in the region were forced to compromise over the quality of the personnel they hired, they now only battle for the very best. Every company is tightening its belt, but there are no reports about dramatic cuts in pay.

The bottom line is that a high-tech worker looking for a job in Boston will find one. Computer personnel are, perhaps, being “released” from the dot.com companies and their suppliers. But, at the same time, there is a rising demand for their expertise in biotech companies, says Soffer.

Published by Israel’s Business Arena on May 13, 2001.

Ami Ginzburg

CreoScitex‘s metamorphosis from a printing specialist into an investment corporation has yet to yield much pleasure to shareholders. Since that dramatic step, when the company’s pre-print division was sold to the Canadian-based firm, Creo, Scitex Corporation Ltd. has had little good news for them: It posted a $12.1 million net loss in first quarter 2001.

This loss, the corporation says, stems in part from financial provisions related to the sale of its pre-print division to Creo. After these provisions, as well as those for amortization of goodwill at its subsidiaries, it posted a pro forma, first-quarter net income of $3.3 million.

The company’s share price continues to tread water at $8.00, reflecting a market value of just $350 million – about 70 percent of its equity capital.

While the first quarter results were not especially bad, they are yet to indicate an imminent, dramatic turn-around. In fact, alongside the good news – primarily from its Scitex Digital Printing (SDP) subsidiary, the corporation also reported the final demise of its Vio Worldwide Limited venture. It also reported another write-off, stemming from the liquidation of Printlife.com Ltd., the Internet company in which Scitex invested some $5 million.

Printlife, of Rehovot, developed a Web-based service that let users compile image albums and have them digitally printed and bound at a regional printing center. Established on the crest of the Internet start-up wave, it managed to lure a number of strategic partners, including Polaroid, Fuji, Kodak and Indigo. But like many Internet companies of its kind, the financial needs of Printlife were too high, and the recently tightened venture capital markets led to its rapid collapse. In addition, the services it provided were very expensive.

Scitex bought into Printlife at a relatively late stage, investing almost $5 million in the company last November, based on an estimated market value of about $40 million. In its first-quarter report for 2001, Scitex announced that a liquidator had been appointed to Printlife by its major creditor, Bank Hapoalim. Scitex, the report added, had written off its investment in Printlife.

The Vio venture also failed due to the difficulty in raising additional outside backing, and its two founders, Scitex and British Telecom (BUE:BTY.BA) , pulled out. Two months ago, Scitex reported that Vio would be the subject of a management buy-out; but apparently the employees aren’t keen to finance the expensive enterprise, an 80-strong operation at its peak. Scitex has close to $30 million invested in Vio, and provisions for liabilities were included in the corporation’s December 2000 reports.

Scitex wrote off a further $30 million at the end of last year for Karat Digital Press – its digital offset press joint venture with the German press manufacturer, KBA. The corporation’s exit from the pre-print field forced it to transfer full ownership of Karat to KBA and forgo the fruits it is expected to yield. KBA will continue manufacturing the Karat machine based on laser heads developed by CreoScitex, which also supplies similar laser heads to KBA’s competitors.

The good news in Q1 of 2001 came from the two principal independent holdings of the corporation – Scitex Vision, which specializes in wide format printing technology, and SDP, which develops high-speed, digital printing systems. SDP provided the more pleasant surprise this time around, recording revenues of $41.3 million in the first three months of the year – minimally a handsome 14-percent increase on the corresponding period of 2000. Another encouraging sign from SDP was the division’s Q1 operating profits, which came to at least $3.4 million, as opposed to a relatively low operating profit of under $1 million in the first three months of 2000.

Another factor likely to have a positive effect on SDP this year is the marketing agreement the Scitex division signed with Xerox. SDP hopes the deal will help it break into a market that has, until now, been closed to the company – the institutional market, and particularly financial organizations that operate printing centers of their own, as opposed to SDP’s natural market of commercial printing houses. Scitex reports that the Xerox agreement has already borne fruit: a $4 million order from a leading financial institution in Europe.

In 2001, Scitex expects to see an increase of 10-15 percent on SDP’s revenues of $152 million in 2000. The corporation’s CEO, Yoav Chelouche, and its CFO, Yosef Zylberberg, say SDP is also likely to continue showing an operating profit of some 10 percent of revenues for the rest of the year.

Scitex Vision has also had a good first quarter, with revenues growing by 33 percent, to $22.8 million, as opposed to $17.1 million in the first quarter of 2000. The growth stemmed primarily from the sale of equipment to the tune of $16.3 million – a 39 percent increase on the $11.7 million generated in the first quarter of last year.

Despite its handsome, first-quarter sales growth, Scitex Vision’s operating profits (before amortization of intangibles) totaled only $2.5 million – a negligible increase on the corresponding period last year. Scitex explains this by noting that, in the first quarter of 2000, the corporation had yet to split into independent divisions, so the results of Scitex Vision at the time were incorporated with those of the entire company. In any event, the corporation explains, over the past few quarters, Scitex Vision has shown a consistent improvement in operating profitability – a direct offshoot of the division’s sales growth.

Scitex Vision is less satisfied with the slow implementation of the agreement with 3M for the joint marketing of printing solutions. The strategic alliance with the U.S. company was intended to expose Scitex Vision to a large group of customers and help boost the division’s growth in revenues.

According to Chelouche and Zylberberg, the reasons for the delay in implementing the 3M deal stemmed from the technical specifications that 3M demanded for the machines it markets, coupled with personnel changes at the American company that seemed to have prejudiced t