When Alexey Chalimov founded software design firm Eastern Peak in Israel four years ago he knew he would not find the developers he needed at home.
He went to Ukraine and hired 120 people to develop mobile apps and web platforms for international clients and smaller Israeli startups.
"I worked for years in the Israeli market and I knew what the costs were in Israel and I knew there was a shortage of workers," he told Reuters.
Driven by startups, Israel's technology industry is the fastest growing part of the economy. It accounts for 14 per cent of economic output and 50 per cent of exports.
But a shortage of workers means its position at the cutting edge of global technology is at risk, with consequences for the economy and employment.
The government's Innovation Authority forecasts a shortage of 10,000 engineers and programmers over the next decade in a market that employs 140,000. Israel has dropped six spots in three years to 17th in the World Economic Forum's ranking of the ease of finding skilled technology employees.
The shortage is particularly painful for Israel's 5000 startups which compete for talent with development centres of technology giants such as Google, Intel, Microsoft and Apple. They offer big incentives that a startup cannot afford.
Israel will lose its edge if the shortage isn't tackled, said Noa Acker, head of policy at the societal challenges division at the Innovation Authority.
"Salaries will be very high and the industry will shrink to only very high level R&D while much of the work will be exported," she said.
The main reason for the shortfall is a sharp drop in the number of computer science, maths and statistics graduates, down from a peak of 3,000 in 2005 to a low of 1,600 in 2008.
This is partly due to problems in secondary and primary schools where lack of funding means some classrooms do not have computers and advanced maths teachers are in short supply.
"Why do we still have classes where there are no computers?" said Yifat Turbiner, a researcher in entrepreneurship and innovation at Ben-Gurion University.
"If more budgets aren't allocated to generate a technological state of mind ... from elementary school, I believe all industries will suffer, not just high-tech."
Another reason for the shortage of computer science graduates is that after the dotcom bubble burst in 2000 many Israeli high tech workers lost their jobs, Acker said.
This meant that students lost interest in tech careers and university applications declined.
The Education Ministry has announced plans to boost studies of maths and science, especially in high-schools outside the cities where advanced classes are not always available. But Turbiner said initiatives are also needed for a higher standard of maths at a younger age including training more teachers.
