This article first appeared as a Comment in the 28 January issue of Flight International
Israel is the rare defence industry with a shrewd grasp of product strategy. Unlike American and European contractors, the products Israeli firms build for their own military are a small fraction of their portfolios. The purpose of the sector is to develop products for other militaries and funnel proceeds back into technology required by the defence ministry in Tel Aviv.
Driven by necessity, Israel’s largely state-owned aerospace industry can offer their global competitors a living case study in cost-effective innovation.
The secrets to Israel’s success are really not that mysterious. First, Israeli companies invest double or triple the global industry average in research and development. It is also a discretionary investment, so Israeli firms can control which projects get funding – quite apart from the alternative approach, which takes its cue from a government’s priorities.
Israeli industry then anticipates the future needs of its customers, directing technology flowing from research into bankable products. This seemingly straightforward process perhaps should not sound so remarkable in the defence industry, but it is. By assuming full control of product design, Israeli firms are not subject to the whims of government procurement offices.
It is no wonder then that Israel’s industry was responsible for revealing the full potential of unmanned air vehicles – a technology too disruptive for the American system to embrace. The credit for the design of the Americans’ paradigm-breaking Predator UAV belongs to Abe Karem, after all – an Israeli immigrant.
After defining the concept and product design, Israeli companies then calculate how to execute the project. This is no small task – Israel usually cannot count on a single order for hundreds or thousands of any product on the export market. It has to create a return on investment from selling small batches to different customers, customising to fit the unique needs of operators from the Himalayas to the Amazon.
The question only remains how long the Israeli model can be sustained. Israeli firms have bristled at calls for further consolidation, despite the obvious advantages. And the Israeli government has bitterly resisted any move to privatise the two state-owned firms – Israel Aerospace Industries and Rafael.
The industry, however, should take heed: absorbing painful change is always easier when the situation is not urgent, rather than during an inevitable – albeit avoidable – financial crisis.