Israel Innovation Authority Warns of Overseas Migration and Infrastructure Gaps

The Israeli high-tech sector has demonstrated remarkable resilience despite the ongoing war, the global tech crisis, and the artificial intelligence revolution, accounting for roughly 58% of national exports and 18% of the Gross Domestic Product. There are slightly more than 9,000 active high-tech companies in the country, with one-third focusing on artificial intelligence or utilizing it as a core technology. However, Israel Innovation Authority Chairman Alon Stopel has raised serious concerns regarding several warning signs that threaten the industry's long-term dominance.

Globalization and Overseas Growth

One of the primary concerns highlighted by Stopel is that while Israeli companies continue to expand, a significant portion of that growth is migrating abroad. In 2025, Israel maintained approximately 425,000 high-tech employees domestically, compared to roughly 440,000 workers employed abroad by Israeli-founded companies, including publicly traded firms. This trend is driven by Israeli tech companies becoming increasingly global, with management teams, chief executive officers, and research and development centers relocating overseas.

"If in the past Israeli companies opened overseas branches in sales, marketing, and customer support, today we see some management boards moving abroad, sometimes including the company's CEO or VP of R&D," said Alon Stopel. "The combination of rising labor costs for Israeli employees and the weakening of the dollar against the shekel over the past two years has heavily impacted both revenues and expenditures."

Local salaries have reached historic averages of approximately 38,000 shekels, rivaling Silicon Valley compensation packages. Furthermore, American investors—who represent the largest foreign investor base in Israeli high-tech—frequently favor companies incorporated in Delaware due to more favorable tax conditions, such as the ability to defer capital gains taxes upon reinvestment. The Innovation Authority, in coordination with the Israel Tax Authority, has addressed these issues within upcoming economic arrangements to ensure foreign investors remain competitive.

Neglecting Long-Term Technological Infrastructure

Another critical vulnerability is the lack of substantial government investment in long-term technological infrastructure. While global superpowers and advanced economies invest immense capital into next-generation technologies as part of their national security strategies, Israel risks lagging behind. For instance, China's annual quantum computing research budget reaches approximately $15 billion, whereas Israel allocates a mere 100 million shekels.

"One of our greatest challenges as a state is understanding that we cannot continue to rely solely on the private sector to drive high-tech forward," Stopel emphasized. "Israel is a global leader in R&D expenditure as a percentage of GDP, but 90% of that funding originates from private corporations. Without significant government intervention in foundational infrastructure, we risk compromising the next decades of our economic future."

The Junior Employment Crisis and Future Resilience

Addressing the ongoing junior employment crisis triggered by the artificial intelligence revolution, Stopel acknowledged that recent graduates face severe hiring hurdles. Although the market has not contracted numerically, its underlying requirements have shifted profoundly toward AI engineers and architecture specialists. To combat this, the Innovation Authority launched the 'Hi-Tech Launchpad - Practical Experience' initiative, granting junior professionals up to 50,000 shekels while companies subsidize the remainder of the salary. Nearly 1,000 junior employees have successfully transitioned through the program, though industry leaders must take active responsibility to secure tomorrow's senior engineers and entrepreneurs.