When Moti Gutman first thought of tapping into Israel's insular ultra-Orthodox community as a source of inexpensive high-tech labor, he had no idea how complicated it would be.
The chief executive of Matrix IT (MTRX.TA), Israel's largest contract software and IT services house, Gutman was trying to cut costs to compete with rivals who sent jobs offshore. He and his management team had a different idea: They opened a software programming center in Modiin Ilit, an ultra-religious or Haredi community 18 miles (30 km) east of Tel Aviv, where office space was cheap and there was an ample supply of underemployed female workers. From an initial group of just 50 women five years ago, the staff has now grown tenfold—and continued to expand even during the economic downturn of the past year.
The financial benefits are clear. Entry-level pay at Matrix Global, the subsidiary in charge of the project, starts at around $1,000 for a five-day, 40-hour week, about half the going rate for comparable positions in the Tel Aviv region. Wages also tend to rise more slowly than elsewhere in Israel. That lets Matrix offer IT services at prices competitive with places like India, Bulgaria, and Ukraine. "This allows us to offer a 'nearshore' option to many of our customers who have either moved or are considering moving development work outside of Israel," says the 47-year-old Gutman.
Separate the Men from the Women Getting the idea off the ground wasn't easy, though. Gutman first had to clear it with local rabbis, who set down a raft of religious conditions, particularly concerning the separation of men and women. All workers are required to wear modest dress, and the women work in cubicles set apart from men to minimize nonbusiness interaction. Matrix also was compelled to provide gender-segregated kitchens and private rooms for nursing mothers. A rabbi visits the facility twice a week to deal with any problems that arise.
Finding such ways to make work compatible with religious observance should help the local area. Modiin Ilit, a town of 45,000 settlers located 1.2 miles (2 km) beyond Israel's 1967 border with the West Bank, has already felt a socioeconomic lift, especially as several other companies have followed Matrix into the area. Better standards of living are also a much-needed boost for the Haredi, who make up about 15% of Israel's population and are by far its poorest community.
The biggest impact is on Haredi women, who often serve as their families' main breadwinners to allow their husbands to continue studying at yeshivas, or religious centers of learning. Traditionally, most Haredi women have worked in lower-paying jobs as teachers or caregivers for local children. Few ventured into the mainstream Israeli economy.
Outsourcing Right in the Neighborhood"Our big selling point is that the women have flexible hours and are close to home," says Libby Affen, Matrix Global's chief operating officer. That allows them to take breaks to go home and tend children. The high number of children in religious families also means that typically 10% of the workforce is on maternity leave at any given time. Affen says Matrix copes well with the issue: The women work in teams and can shift tasks easily to colleagues. And they almost always come back to their jobs after their three-month maternity leaves end.
The success of the Modiin Ilit facility has lifted the fortunes of Matrix, based north of Tel Aviv in Herzliya. The company employs a total of 4,500 people and took in revenues last year of $380 million. Its Matrix Global unit now offers software development and quality assurance services to about 60 clients, including many leading Israeli and foreign high-tech companies such as SAP (SAP), Hewlett Packard (HPQ), Nice Systems (NICE), and Amdocs (DOX).
Clients are happy to have an outsourcing provider near by. "Offshore is 25% cheaper, but when you factor in all of the overhead the differential all but disappears," says a senior software engineer at the Israeli subsidiary of an American high-tech company. She cites proximity and quick response time as crucial factors in the success of her company's contract with Matrix Global, which is now in its fourth year.
Some customers don't even have the choice to go offshore. The Israeli government, for instance, has an ambitious program called e-Gov that aims to digitize delivery of public services—and the work has to be done in Hebrew. Pinhas Rozenbloom, chief technology officer of the Finance Ministry's e-Gov initiative, says the government looked for off-the-shelf solutions before deciding to award the huge project to Matrix Global. Now, 40 women in Modiin Ilit work exclusively on the e-Gov program for what Rozenbloom says is a fraction of the price the government would have had to pay to other software companies.
The government is encouraging Matrix in other ways, too. Because the company is lifting the fortunes of the Haredi, the Israeli Industry & Trade Ministry pays Matrix a $270 monthly subsidy for each worker. "We can help 10 times the number of ultra-religious to go in this direction and make their lives much better, and at the same time strengthen the economy," says Government Services Minister Michael Eytan. That's an important objective because Israel lags far behind most Western countries in its labor-force participation rate. This is largely the result of limited employment in the Haredi and Israeli Arab communities, where job opportunities are often scarce.
Few Pay Gripes There appear to be few complaints among Matrix Global's employees in Modiin Ilit about their low pay compared with that of other Israeli high-tech workers. "The flexibility of work hours combined with the on-site training open up a whole new world for religious women," says Galit Kouhana, a 34-year-old mother of five who quit her job as a teacher three and a half years ago to join Matrix as an entry-level tester and has since graduated to project leader.
While Matrix was the first high-tech firm to tap the potential of the Haredi community, several other Israeli software companies now have followed its lead, including Malam Team (MLTM.TA) and TesCom Software Testing Systems (TSCM.TA). They all recruit from an estimated annual pool of 1,500 graduates who take computer and software engineering courses offered to Haredi women through training colleges.
Last year, Matrix opened its second facility in Bet Shemesh, 12 miles (20 km) from Jerusalem. A third center is expected to begin operations in Haifa in 2010. "Our target is to have 1,000 from the Haredi community working for us within two years," says Matrix CEO Gutman. But he estimates the potential at more than 10,000 workers. With the rabbis sanctioning the entry of women into this field, Israel's high-tech industry may have just found a way to stay competitive.