US firms turn to Israel as outsourcing alternative

Besides lower costs, nation boasts pool of educated, English-speaking workers

BOSTON GLOBE
November 24, 2006

By Matthew Kalman, Globe Correspondent

JERUSALEM -- For US firms looking to slash costs by farming out work abroad, eyes may turn first toward bargains like Bangalore or Beijing.

Luckily for Israel, it has other charms.

In the past year there has been greater enthusiasm for outsourcing services to Israel, which differentiates itself from India and the Far East by offering a vast pool of highly educated workers who are native English speakers and share a cultural affinity with the West.

The heightened interest comes as the government is offering firms a $200-per-month subsidy for each worker employed by foreign companies. While Israel's workforce still doesn't come as cheap as its rivals, salaries are far less than in America. And perhaps surprisingly, all the figures for economic growth, credit ratings, and investment this year indicate the instability in Israel has not affected business at all.

"In the past 18 months, 700 new jobs have been created in outsourcing in Jerusalem alone. The industry is growing rather rapidly, from 100 employees three years ago to more than 1,500 today," said Jafar Sabbah, codirector of StartUp Jerusalem, a nonprofit created to stimulate employment.

MyPrepForce, a company based in Westport, Conn., that provides Web-based programs for bookkeeping and payroll services for accounting firms and large corporations in the United States, previously outsourced financial functions to India but now says work will be handled by Outsource2Israel.com in Jerusalem.

"Israelis have better English language fluency -- especially since so many are US expats or have American parents -- than in other countries; their customs and values are similar to those of US citizens; the infrastructure and security in Israel is much better than in other foreign countries; and Israelis have a high work ethic," said Greg Fern, executive vice president of MyPrepForce, a division of FSO Technologies Inc., also based in Westport.

Eli Kazhdan, a former chief of staff for the Israeli Ministry of Industry and Trade who is now a consultant to outsourcing companies in Israel, said most of the jobs are medium-to-high-end call center work, legal and paralegal, and information technology. Immigrants have become a major resource because they speak a variety of languages that can benefit a host of international companies. "Israel is in a unique position due to hundreds of thousands of immigrants from around the world," Kazhdan said. "This is where Israel has its competitive edge. We are able to cut costs without compromising on quality."

In a 2005 survey, consulting firm AT Kearney ranked Israel among the most attractive places worldwide for outsourcing. Last year The Economist ranked Israel in the top 20, and Red Herring magazine dubbed Jerusalem a "new hot spot" for outsourcing.

Though wages in Israel are generally lower than what companies pay in the United States, Israel is no cost rival for places such as India. According to a 2006 survey by consultants at Catalyst IT Partners Ltd., the average fully loaded cost per seat per hour for a call center in Israel was $19, compared with $12 in India and $40 in the United States. The survey also reported typical contact center wages were $7 per hour in Jerusalem, compared with $3 in Mumbai and $10 on the US East Coast.

In Modi'in Illit, a settlement of 22,000 people just inside the West Bank, 150 women are employed at CityBook Services performing paralegal work such as checking lease contracts and property titles for clients across the Northeastern United States. CityBook's arrival in this ultra-Orthodox Jewish, or "haredi," township halfway between Jerusalem and Tel Aviv triggered a small social revolution, as 50 percent of families are below the poverty line and many of the men are full-time students in yeshiva seminaries, drawing social benefits. The community is not a normal part of the Israeli workforce because it has been stigmatized as insular, nonproductive, and too dependent on welfare.

Chaya Milgraum, 22, a mother of two originally from Worcester, said she began working at CityBook two years ago because she and her husband, who was then a full-time yeshiva student, "really needed it."

"There was a little opposition from my parents and my parents-in-law because they're not used to the woman going out to work; only the husbands go to work," Milgraum said. "At the beginning it was hard but then they said, 'You know what? It's good for you -- you're getting out, you're taking care of yourself, and you feel good about going to work.' "

CityBook gives the women four months training and pays well above minimum wage in a modern working environment that respects their religious values. This means strict physical separation between men and women, modest dress by both sexes, kosher kitchens, , and time allowed for prayer. "These people would not work in a Tel Aviv high-tech company because it just doesn't fit with their lifestyle," Kazhdan said.

Joe Rosenbaum, an ultra-Orthodox Jew from Lakewood, N.J., founded CityBook three years ago as an offshoot of Madison Title, his insurance and property-services firm also based in Lakewood. He said pay is 40 to 50 percent lower in Israel than in the United States, but CityBook pays 60 percent.

Rosenbaum plans to create 40 jobs for the ultra-Orthodox community in Jerusalem.

"There's a tremendous reliability, work ethic, and commitment," he said. "They are very careful not to waste time and are extremely grateful for the opportunity afforded them, so they go way beyond the call of duty. It's an unbelievable solution."

IDT Global, a Jerusalem unit of US communications giant IDT Corp., leads Israel's outsourcing sector with 1,000 employees operating call centers for clients around the world in a wide variety of languages and providing a broad range of outsourced services from graphic design to accountancy and paralegal work. IDT Global says its clients include AOL, Western Union, Sears, OneTel, and Barnes & Noble.

Lloyd Lurie, chief operating officer of IDT Global, said his staffing level has leaped 50 percent in the past 18 months with increasing demand from the United States, Canada, Britain, and Europe. He said Israel was unique in being able to offer multilingual operations under one roof, saving a company from having to farm out each language operation to a different country.

"If someone is looking for a generic, low-cost provider, let them go to India or the Philippines -- we're not competing," he said. "What we provide is a quality of work that is the same quality as they would find in their own native country, but the prices are lower.

"In Israel we have immigrants who lived in these countries, so they are not only familiar with language and speak it at a high level, but they are also familiar with the culture as well . . . It's very difficult to provide from other places. There's only so much you can learn from a crash course."