Israel Turns to Outsourcing as the Shekel Soars

The high cost of doing business in Israel these days is forcing many local high-tech companies to expand abroad to remain competitive. Wireless broadband developer Alvarion (ALVR) is a case in point. With local costs skyrocketing in the past year, thanks to a meteoric rise in the shekel, Alvarion has imposed a freeze on hiring and wages at its Tel Aviv headquarters. Yet at the same time it aims to double the number of engineers it employs at its R&D facility in Bucharest, Romania, to over 150 by the end of this year.

For years the cost advantage of Israel's high-tech industry over Silicon Valley and other tech hot spots was a major selling point. This led global giants like Intel (INTC), Motorola (MOT), and Microsoft (MSFT) to set up major R&D operations in Israel, and was the catalyst for local success stories like Check Point Software Technologies (CHKP), Nice Systems (NICE), and Amdocs (DOX). That's no longer the case. "The cost of an Israeli engineer is now on par with the U.S., while his Romanian counterpart is just one-third," says Tzvi Friedman, CEO and president of Alvarion. An Israeli high-tech engineer makes about $90,000 at the latest exchange rate.