Vol. 4, No. 20    March 14, 2005     

• In order for six million Israelis to face the quantitative asymmetric population imbalance with their potential enemies, they must maintain an asymmetrical qualitative edge.

• Through the evolutionary process of trial and error, Israel’s defense industry has focused on innovative system applications using proven technologies, avoiding investments in major platforms (except for the Merkava tank which has a unique history).

• Export is essential for Israel’s industry to keep its critical mass because the internal market is too small to support it. Israel’s defense exports have reached $3 billion annually, which makes it a significant player in the global export market in certain areas.

• Israel’s defense industry also serves as a “greenhouse” for its growing civilian industry by training industrial leaders to succeed in a very demanding and competitive defense market, and through innovative ideas which are generated from weapon systems.

 

Countering a Population Imbalance with a Qualitative Edge

In order for six million Israelis to face a quantitative asymmetric population imbalance with their potential enemies, they must maintain an asymmetrical qualitative edge.

There are several truths Israel has learned during its years of independence:

1. Israel has had very painful experiences when relying on other countries because of the political constraints that influence their decisions when it comes to modern defense equipment.

2. Leading defense technologies are usually a playground for superpowers, which face threats and operational needs that are not those that Israel is facing. Thus, even without the factor of political constraints, those countries simple don’t have what Israel needs.

 

Concentrating on Applications, Not Platforms or Basic Technologies

The Israeli defense industry grew through a trial and error process, with the current concept being that Israel should concentrate on innovative system applications, based on proven technologies, and avoid investments in major platforms or new generic technologies because of the huge investment required to keep a leading position in those two specific areas.

Export is essential for Israel’s defense industry to keep its critical mass because the internal market is too small to support it. Israel currently exports around $3 billion annually, which is around 70 percent of its defense production. By doing so Israel is reaching a significant share of the global market in certain force-multiplying weapon systems, a position that aggravates the big guys in the U.S. and Europe who don’t like the market share that Israel is reaching, leaving it with no other choice but to excel in order to sustain its market position.

One of Israel’s advantages is the very close teamwork between the defense industry and the end user in the Israel Defense Forces. Engineers and users have to understand one another, and work as a close team in order to bring innovative solutions to the field.

 

Strategic Alliances with Defense Companies Abroad

Israel’s Defense Ministry is encouraging strategic alliances with leading defense companies abroad to share risks, investments, and markets. A good example is the cooperation between Rafael and General Dynamics on an active armor protection system (named Trophy) which is designed to protect armored vehicles against all types of highly lethal threats. It is the beginning of a revolution that will change the face of armored forces and their fighting doctrine.

 

Civilian Applications

Israel’s defense industry has an impact on the civilian industry in a number of ways. Since Israel has a relatively young civilian hi-tech industry, the defense industry is the major source that develops industrial leaders who can think big in relation to global markets, and who gain the experience of managing complex projects with a total commitment to quality.

Furthermore, breakthrough ideas are coming from defense innovation, such as a miniature capsule, produced by Given Imaging, that is swallowed and transmits a picture of the patient’s small intestine. The idea for this life-saving device was triggered by a missile scientist who took part in the development of the 3,000-pound Popeye missile, which was designed to pinpoint a target, within the size of a window, from stand-off ranges of up to 100 kilometers.

 

Privatization

As the former manager of Rafael (which was transformed three years ago into a government-owned company), I believe that the government-owned defense companies should move toward privatization for two main reasons:

1. The government does not have the tools to act as a proper owner of an industry in a highly dynamic and competitive market.

2. Government-owned companies will not be able to compete in the future to capture the most talented people.

Although privatization has its drawbacks and failure mechanisms, government ownership appears to me as the less favorable alternative.

 

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Giora Shalgi is former President and CEO of Rafael, the main R&D authority for the Israel Ministry of Defense. This Jerusalem Issue Brief is based on his presentation at the Institute for Contemporary Affairs in Jerusalem on February 10, 2005.