Peace May Not be at Hand, But Software Deals Are

(Released July 25) HERZLIYA, Israel — When Israeli high-tech executive Jonathan Levy decided to outsource software engineering to Palestinians, his colleagues were skeptical.

"Will they harm us? How will we know if they don't bring in bombs? Should we be working with our enemies?" they asked.

Since March, seven Palestinians — five men and two women, all recent graduates of West Bank universities — have been designing software for Nuvoton Technology Israel.

It's one of a handful of new business relationships forged across a cultural and political chasm that is rarely bridged. Israeli and Palestinian technology leaders say business partnerships could lead to greater reconciliation between the two peoples.

"The reason we're doing it has to make business sense," said Levy, president and general manager of Nuvoton, which produces integrated circuits for computers and consumer electronics. "If it works, it can bring more prosperity to the region."

A growing number of information technology firms in Israel are taking advantage of a lull in violence to explore business deals in Palestinian areas that once were known in Israel as hotbeds of terrorism.

Every year, 2,000 Palestinians graduate with bachelor's degrees in computer science or software engineering from West Bank universities.

"Why go to China or Europe when you have it right next door," Levy said of outsourcing to Ramallah, the administrative and business center of the Palestinian West Bank.

Veritas Venture Partners, a venture capital firm based in Israel and Atlanta, is seeking investors for a $30 million to $50 million fund it expects to launch by the end of the year that will provide seed money for 10 to 12 start-ups originating in the Palestinian territories.

"Part of the logic behind the fund is that Palestinian companies can gain from having access to the experience and networks that the Israel venture and high-tech industries have developed over the past couple of decades," Yadin Kaufmann, founding partner of Veritas, said in an e-mail on Thursday from Atlanta.

The fund will focus on software outsourcing companies, Kaufmann said, "because there is a critical mass of capable and entrepreneurial software engineers in the West Bank, and exports of software avoid most of the challenges involved in exporting 'hard goods' from the West Bank today."

Chemi Peres, an Israeli venture capitalist and the son of President Shimon Peres, called Israeli-Palestinian business partnerships "the easiest way and the most rewarding way to build cooperation."

"It's a chance to really shape the future for the two peoples and not leave it to other people who cannot come to terms," he told a conference of Israeli and Palestinian high-tech business leaders earlier this month.

The U.S. Agency for International Development, a branch of the State Department, sponsored the conference in hopes to pushing business ties between the two communities.

"I think it's clear economies relate to peace," said David Harden, deputy mission director for the agency's projects in the West Bank and Gaza Strip. "At the end of the day, if the Palestinians are connected to the world, if they're trading and innovating, that's good for everybody."

The few high-tech relationships that existed between Israelis and Palestinians crumbled in 2000 as the conflict erupted anew. Only in the past year have executives reached across a divide that still runs deep for both communities.

"You have political constraints that relate to the conflict which are immense," Harden said. "I don't want to be naive about the constraints but I don't want to be defeated by the constraints."

Among the obstacles: Israel prohibits its citizens from entering Palestinian cities and Palestinians must apply to Israeli authorities for permission to travel to Israel, which often takes three weeks to obtain.

One of the few places both can meet without permits is a gas station near a West Bank Jewish settlement east of Jerusalem.

Levy, the president of Nuvoton, conducted interviews with Palestinian job prospects at the small restaurant attached to the gas station.

"It was very surreal," Levy said.

For the Palestinian job candidates, it was the first time in eight years they had met an Israeli who wasn't wearing an army uniform.

The applicants later received permission to travel five days a week for two months for training and further evaluation at the company's office in Herzliya, a Tel Aviv suburb and the center of Israel's booming high-tech industry.

"I will not change my mind about Israeli soldiers. They're still soldiers," said Mohammad Abu Farha, 24, one of Nuvoton's Palestinian software engineers, who work in Ramallah. "But to work with Israelis at work, it's like working with Americans or French. It's just work."

The strong Israeli currency and weak dollar have pushed Israeli firms to look for new ways to trim costs in order to better compete in the American market.

Outsourcing software engineering to the West Bank, where technology workers typically make one-third to one-half the salaries of their Israeli counterparts, is one solution, Israeli executives say.

Israeli and Palestinian high-tech firms aren't the first to work together — shoe, textile and stone and marble industries on each side have developed trading ties — but in Israel, high-tech executives wield political power and some hope their inroads into the Palestinian business community can push forward political negotiations.

For Palestinians, Israel's high-tech industry presents a good business opportunity.

"We think it's a natural thing to work with the Israeli private sector," said Murad Tahboub, managing director of Asal Technologies, a Ramallah-based software development-outsourcing firm with mainly European clients. It recently signed contracts with two Israeli companies, including Nuvoton Technology.

"It's a huge market next to us, it has excellent international connections and it has an excellent growth rate," Tahboub said. "So why don't we tap into this market? It makes perfect business sense."