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MINISTRY OF ECONOMY AND INDUSTRY
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The secret to developing a strong economy
How tech and talent are driving Israel forward
Why entrepreneurial failures can help to raise standards
Progressive manufacturing benefits from advanced expertise
Israeli culture encourages entrepreneurship
Why MNCs relish Israel’s unique ecosystem
Find the right conditions here for multinational innovation
An IoT Sector report
The Israeli automotive ecosystem
The Israeli aerospace and 3D printing ecosystem
Israel’s leading position in life-sciences
Why Israel’s economic strength and stability make it a winning FDI destination
How Israel’s business ecosystem facilitates the nation’s unique creativity
How proximity between R&D and manufacturing gives Israel an advantage
How Israel has become a master of all trades
Israel’s business landscape proves that taking risks pays off
Why world-class corporations want a share of Israel’s success
Where talent and technology combine to make a perfect match
Advanced manufacturing success attracts major investors
From research to manufacture, proximity gives Israel the edge
Israel’s economy is growing and foreign investors can benefit
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In Israel all stages of a product’s lifecycle, from development to manufacture, are frequently performed under one roof—or close by—giving companies a technological boost.
MNCs find that Israel has much to offer, with government support and ready-made collaborative potential from academic institutions and the military.
Stability, above-average growth and a high-calibre workforce make Israel an attractive choice as a base for foreign multinationals.
Innovative appropriation of technology developed for the defense industry contributes to medical success.
The lateral transposition of expertise gained in specialist fields to the commercial domain results in some big wins for Israeli companies and investors.
Automotive companies are increasingly attracted to Israel because of its competitiveness, innovation and sheer pool of available talent.
Israel’s entrepreneurs are a terrific match in terms of talents for the IoT marketplace, particularly in the vital area of security
Uncertain conditions have given Israelis the determination and spirit to build a growing economy, with conditions ripe for international investment.
The close physical proximity between R&D and manufacturing, as well as highly interrelated industries working close by, give Israel an edge.
Using advanced technologies to help drive forward advanced manufacturing, particularly where complex assembly is required.
Israelis' positive attitude and approach to life and high level of education help drive forward leadership in technological fields.
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With government incentives and a thriving start-up scene, foreign multinationals are attracted to Israel by the ready availability of strong engineering skills and native creativity.
Israel’s entrepreneurial culture makes it a center for start-ups and innovation. Foreign entrepreneurs are offered government support through the Innovation Visas pilot program.
Where Israel lacks natural resources, it turns its natives' natural creativity and innovation to its advantage offering unique cross-sector solutions across numerous sectors.
High quality education, a well-developed investment sector and favorable trading conditions make Israel attractive to foreign companies.
Government incentives are just one element of Israel's unique ecosystem that keeps foreign companies coming back for more.
Innovation, lack of natural resources, a culture of questioning, the need for defense; all have resulted in Israel's tech pre-eminence.
Israel has advanced expertise in robotics, vision technology, IoT technology, and other systems that are required for specialized, advanced manufacturing processes.
Israel's small size belies the existence of a rich tech ecosystem; it has developers, engineers, entrepreneurs and investors.
Israel’s advanced tech infrastructure is furnishing the building blocks of the products and services that will change the way we live, for the better.
If you’re a fan of statistics, Israel offers you a lot to love. Israel's exceptionally high economic growth rate is underpinned by an open economy that continues to get things right.
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IN ISRAEL, where the population numbers 8.6 million and is growing year on year, you often get the feeling that everyone knows everyone: walk along a Tel Aviv boulevard and watch how many people greet each other. The strength of relationships here is crucial for businesses, because it breeds innovation. In the World Economic Forum’s 2016-2017 Competitiveness report, Israel ranked second overall for its innovative edge. Twenty years ago, when the U.S. semiconductor manufacturer Applied Materials acquired two local Israeli companies, Orbot Instruments and Opal Technologies, it was the beginning of an engagement with Israeli manufacturing that has grown consistently ever since. The relationships flourished and, in 2001, the company acquired Oramir Semiconductor Equipment and expanded further. Today, Applied Materials employs around 1,000 people in Israel in research, development, manufacturing and marketing—and Israel is the only one of its global units to combine all these capabilities. Hewlett Packard Enterprise has a similar arrangement, with a full set of operations under one roof. This proximity—to the point of colocation— between research and development (R&D) and manufacturing is remarkably common in Israel. Fellow semiconductor maker Intel followed a similar path, starting with an R&D center in Kiryat Gat in the south of Israel in the 1970s, a seed which blossomed into a $3.5 billion manufacturing plant by 2005. With exports from this facility now topping $39 billion, Intel has invested more than $6 billion in Israeli manufacturing. These vast inward investments are testament to Israel’s mastery of advanced manufacturing techniques, processes and technologies. These include big data and cloud systems, additive-manufacturing technologies such as 3D printing, industrial robotics, and manufacturing processes using advanced IT systems, including dynamic and flexible processes. Advanced manufacturing is defined as technologically complex products, new materials, products with highly sophisticated designs and other innovative products, according to an Invest in Israel report. “A coordinated product-development cycle, which closely ties the R&D process with the manufacturing process, perfectly suits the fast pace of advanced manufacturing technologies,” the report states. In practical terms, this means creating close geographical proximity between development and manufacturing teams, together with a transition of workers and feedback between them. “In Israel, this kind of coordinated product development is stimulated by the physical proximity and the abilities of the advanced industries,” says the report. Since much multinational corporation (MNC) investment into Israel is high-tech based, the Invest in Israel agency is pleased to see that 20% of MNCs manufacture in the country. Most new investment comes from MNCs already in the country, “so the main focus is to promote advanced manufacturing, especially in conjunction with research and development,” says an Invest in Israel spokesman. “The proximity of R&D and manufacturing is part of the competitive advantage of Israel.” “Innovation does not only mean R&D: it is a whole attitude and, as such, is also relevant to manufacturing,” says Eli Cohen, Minister of the Economy. “We are happy that many multinationals have embraced this attitude, and we work to promote it through Invest in Israel globally.” GE Healthcare is an MNC with a strong presence in Israel. At its Digital CZT Detectors Center of Excellence in the central city of Rehovot, it is making important breakthroughs in the field of nuclear imaging. Metal elements are grown to a single crystal, then processed to a semiconductor and assembled to become a 256-pixel digital detector that can directly convert photons to electrical signals. “This is not science fiction—this is what we do at GE Healthcare Israel,” says Noam Zilbershtain, general manager of Digital CZT Detectors CoE, GE Healthcare. “Innovation is everywhere. Research, engineering and manufacturing. Innovation is our DNA. This is our culture.” Mike McNamara, chief executive of U.S. electronics manufacturing giant Flex, which employs 3,500 people in Israel across six locations, was asked what makes Israel important as a manufacturing location. Mr. McNamara replied, “The creativity and resourcefulness. All the capacities we see in the high-tech sector, we see in manufacturing.” The continuous communication between R&D and manufacturing in Israel leads to shorter process times and better products. For MNCs, being able to call on the services of the Israel Innovation Authority leads to fruitful collaborations with small local manufacturers and innovators. MNCs can then take their products and market them world-wide. Among hundreds of similar examples, Israeli company Qlight—a technology spin-off from the Hebrew University of Jerusalem, which improves color impression and energy efficiency in displays—was acquired by German company Merck in 2015. This deal was the culmination of a long relationship between the two companies, as Merck increased its investment in Qlight and deepened its manufacturing collaboration. Items such as flat-panel screens employing Qlight’s technology are now in development. An advanced, high-tech approach applies throughout Israel’s manufacturing sector, not only to tech products themselves. Textiles, leather, metal and other traditional industries are encouraged to adopt innovative technologies and R&D processes, and to form partnerships with MNCs. By doing so, the country hopes to boost productivity and competitiveness while also diversifying the economy. Like the semiconductor industry a generation ago, the entire Israeli manufacturing sector is forming exciting new relationships and engaging with the wider world.
WITH 47% OF workers in Israel holding a university degree, a strong emphasis on education runs through Israeli society and business. It also helps to explain the country’s entrepreneurial energy, the calibre of its universities and its readiness to do business with the rest of the world. But as a small and still young market, with a population the size of New York City’s and limited natural resources (including water), how does Israel compete with the giants in a global business landscape? Its greatest strength may be its singular brand of creativity. The roots of Israel’s extraordinary high-tech revolution date back to 1972, when IBM opened a research center at the Technion – Israel Institute of Technology university campus. Since then, there has been an increasing flow of multinational corporations (MNCs) into the country, including Microsoft in the 1990s, General Motors in the 2000s, Google in the 2010s and hundreds more along the way. There are now more than 300 MNCs with significant activities in Israel and most of them have arrived in the past 10 years, encouraged by a highly supportive ecosystem: Israel invests more of its national income in R&D—4.2% of gross domestic product—than any other country and has the highest number of PhDs and registered patents per capita in the world. “It was in the late 2000s when multinationals really began to see that Israel had something to offer them,” says Noam Bar-Gal, who is responsible for liaising with MNCs at the Israeli Innovation Authority, successor organization to the Office of the Chief Scientist. “The unique characteristics of the Israeli ecosystem became more obvious: the spirit of entrepreneurship, the permanent yearning to solve problems, to find solutions to any kind of challenge. So companies became far more active.” A flurry of acquisitions through the 2000s and 2010s crystallized the international business community’s view of Israel as a rising focus of tech development, with interest not only from Silicon Valley but also from newly curious nations such as Japan and China. Examples include Indigo, acquired by HP in 2001; Solel Solar Systems, acquired by Siemens in 2009; Anobit Technologies, acquired by Apple in 2011; and Onavo, acquired by Facebook in 2013. This environment has transformed not only Israeli business life, but also created companies and products with an international reputation. Mobileye—recently acquired by Intel for $15 billion—is setting new safety standards in the automotive sector; Waze has transformed the effectiveness of GPS traffic navigation; and Netafim has revolutionized agricultural irrigation worldwide. There has been a growing appreciation of the “Israeli way,” as Mr. Bar-Gal describes it. “First, there are a lot of inventors and holders of ideas. Israelis think that for almost every tangible problem, we can find a technological solution. Second, Israelis think differently from the big corporations (which don’t exist in Israel). This starts and ends with the individual and how they will make their way technologically, economically and socially. Third is the social culture, through which everybody is in contact with everyone else, sharing ideas and knowledge and challenges.” “Ecosystem is a term used a lot lately by many countries, but Israel is the pioneer of this concept,” says Eli Cohen, Minister of the Economy. “In Israel not only are all the pillars of innovation present, they are also interconnected.” The Innovation Box initiative, launched by the Israeli government in December 2016, expanded the range of attractions for global businesses. It offers a further set of tools to assist MNCs looking to set up or expand operations in Israel, together with lower corporation and dividend taxes, and the distinct character of the country’s innovation ecosystem. “The innovation Box is another affirmation of Israel’s government resolution to make Israel the greatest location for innovation,” says Mr. Cohen. “Taxes may be inevitable, but innovation is not. Though increasingly essential, innovation still needs to be fostered and nurtured,” says Ziva Eger, chief executive of Israel’s Foreign Investments and Industrial Cooperation Authority. “That is why Israel, renowned as the ‘start-up nation,’ continues to take bold and innovative steps to make sure its economy remains competitive and its innovation ecosystem remains among the global leaders for the foreseeable future.”
GEOGRAPHICALLY IN THE Middle East, but emotionally and culturally closer to Europe and America, Israel has much in common with Silicon Valley. You’ll hear Californian accents everywhere, see global brands in its shopping malls, read about multinational investment in the papers as you sip your cappuccino while looking out over the Mediterranean. In 2016, around 30,000 people emigrated to Israel—including several thousand Americans—double the number from 10 years ago. One of the best-performing economies in the world, Israel today is reaping the rewards of decisions made in past decades. Faced with minimal natural resources, the country played to its strengths, investing heavily in education and innovation. Today Israel’s unemployment figures are among the world’s lowest at 5.9%; it has gross domestic product (GDP) per head of $36,000 and a life expectancy of 82.2 years. Overall economic growth sits at 2.6%, well above the Organisation for Economic Co-operation and Development (OECD) average of 1.9%. Its innovative drive is well-documented and explored, but the roots of this boom lie in Israel’s foundation: its creation amid unfriendly nations and its continual struggle to secure its borders and its population. One of the few democracies in the Middle East, Israel has developed Western legal and accounting standards, making it simpler and quicker for multinational corporations (MNCs) to set up in the country. In recent years, this combination of stability, above-average growth and high-calibre workforce has attracted a growing number of multinationals to Israel. “There has been a sea change in the approach of key countries in the world toward Israel,” Dore Gold, former adviser to Prime Minister Netanyahu, has been quoted as saying. “Israel has either opened up or completed free-trade agreements with all the tigers of the Far East, and there has been a remarkable opening in the Arab world, which is still under the table.” As of 2017, there is a further incentive for multinationals to base more of their operations in Israel. The OECD’s Base Erosion and Profit Shifting (BEPS) regulations stipulate that corporations must locate their intellectual property rights and tax affairs in the same jurisdiction as their R&D and development and manufacturing operations. Currently, many MNCs conduct R&D in Israel but place their IP activities elsewhere, for tax reasons. “The BEPS regulations are a call to action for MNCs on where they are going to locate,” explains Yoram Tietz, co-managing partner at EY in Israel. He has numerous chief executive officers calling and visiting him to discuss the issues, as they debate whether to choose Israel, Ireland, Singapore, the U.S., or somewhere else as their tax base. Out of the top 100 global tech companies, 90 have significant operations in Israel, according to Mr. Tietz, whether their basis is R&D, innovation labs or acquisitions. This critical mass of tech talent and investment is a further incentive for the companies to bolster their positions here, he argues. “If you want to build an innovation center in Israel, you may as well build your tax structure around it.” The Israeli government believes that the BEPS recommendations are an opportunity for multinationals operating in Israel. A new IP tax regime forms part of the 2017-2018 state budget. The Israel Innovation Authority’s targeted series of grants and other funding, to promote innovation and mitigate companies’ risks in developing high-tech industries, plays a crucial role in fostering optimum conditions for inward investment and R&D operations in Israel. Ziva Eger, chief executive of Israel’s Foreign Investments and Industrial Cooperation Authority, says, “Comprehensive governmental incentives make Israel one of the world’s most attractive places for foreign investors. “Whether you are planning to expand your business in Israel or intend to start a new one, operating in Israel makes simple economic sense for entrepreneurs and multinational firms alike.” To help persuade MNCs of Israel’s magnetic attractions, members of the government and industry associations have toured U.S. tech centers, including New York and Silicon Valley, meeting CEOs and arguing their case. “The Israeli economy exhibits consistent stability and resilience, even in the face of the global financial crisis,” says Shay Rinski, director general of the Ministry of Economy and Industry. He points out that the state of Israel is just 68 years old and that high technology, innovation and education form the bedrock of its rapidly expanding economy. For the dozens of MNCs currently pondering where to base their future tax affairs, these factors will doubtless play a part in their decision-making.
FEELING ALONE IN Israel is not an option. Someone will always spark up a conversation with you, ask your name, find out your history, and look for connections. This insatiable curiosity and sociability also extends to the way it does business. In life sciences, multi-partner relationships thrive in an atmosphere of enquiry and collaboration. Often, collaborations emerge from unlikely sources, with scientists applying new inventions to benefit humanity. For example, imagine a technology that allows doctors to see clear, detailed images of the inside of your body, requiring no surgery, and providing a quick, easy and painless diagnosis of your condition. High-tech life-science laboratories in Israel developed this endoscopy technology, which involves swallowing a capsule containing a tiny camera and is known as PillCam. It means that patients can now be treated noninvasively, saving significant time and resources. “The PillCam was a spin-off from Israeli defense firm Rafael, which used cameras on the tips of missiles,” says Hovav Ref, head of investor relations at Invest In Israel. “It’s a good example of the transfer of defense technologies into the commercial arena.” It’s also an excellent example of the Israeli technological imagination at work, devising solutions to a problem that has beset the life sciences community for generations. The sector requires notoriously long R&D processes, making it tough for small businesses to thrive here. The Israeli Innovation Authority has made a priority of supporting life-sciences companies, with a dedicated incubator for them giving preferential terms, such as a three-year period compared with the usual two offered by the IIA, and additional incentives. The Authority has watched with interest and approval as Israeli companies have connected with life-sciences giants to bring home-developed products to a global market. FutuRX biotech accelerator, for example, is a joint venture between U.S. multinational Johnson & Johnson Innovation, OrbiMed Israel Partners and Takeda Ventures of Japan—a remarkable collaboration between partners from three continents. Products in development include cancer drugs and treatments for neuro-degenerative diseases. “The government has made the decision to promote the northern part of Israel as a life science hub,” says Mr. Ref, mentioning the location in Haifa of Technion – Israel Institute of Technology, Israel’s oldest university, along with generous government support to the sector. Many dozens of small Israeli companies have established themselves in this part of the country, creating a life-sciences hub and a magnet for multinationals seeking collaborations. In the past decade, this official support for the Israeli life-sciences sector has been remarkably effective. An estimated 1,234 life sciences companies launched in the country between 2007 and 2016, according to a new report published by Israel Advanced Technology Industries (IATI), an umbrella membership organization for high-tech and life-sciences industries. “The combination of the country’s experienced and highly educated professionals, an outstanding academic community, innovative spirit and technological prowess will only propel Israel’s life sciences industry even further in the coming years,” says Karin Mayer Rubinstein, IATI Chief Executive and founder. “Israel is a small place—eight million people in 20,000 square kilometers—so it is quite easy to meet senior people,” says Mrs. Rubinstein, though she warns that high levels of professionalism mean everyone must be well prepared. “You only get one chance [to make] a first impression.” Thousands of Israeli life-science inventions, innovations, products and ideas have made a big impression on the world’s markets in recent years. From 135 Israeli medical-device patents registered in the U.S. in 2007, there were 413 in 2013, with the export market for devices reaching $2 billion per year. In pharmaceuticals, the country hosts at least 49 active manufacturing companies, employing around 14,700 people. Israel’s Teva Pharmaceuticals is the world’s largest generic drugs company, with sales in excess of $19 billion and almost 43,000 employees globally. In 2016, Israeli high-tech life-sciences companies attracted investment of $823 million, one-fifth of the country’s total, with average funding per company rising compared with the previous year. And over the past decade, Israeli life-sciences companies have raised more than $6.7 billion on the NASDAQ exchange, most of it since 2013. Many companies are also listed on other international stock markets—the London and Frankfurt Stock Exchanges, and London Stock Exchange subsidiary the Alternative Investment Market (AIM). “The Israeli life-sciences industry changes the lives of millions of people around the world on a daily basis”, says Eyal Eliezer, head of marketing and strategy at Invest in Israel. We use multiple tools to encourage its growth and success, including helping make connections between local companies and leading MNCs in the field. The results of such collaborations have already proved outstanding.” Swallowing a pill that can photograph your insides is just the beginning.
GENERATIONS OF ISRAELI men and women have passed through the country’s military system, gaining not only discipline and expertise but also vital qualities for a career in business, such as communication skills and teamwork. The symbiotic relationship between Israel’s military, technology and commercial sectors is perfectly illustrated by the ascent of its aerospace industry. To take just one sub-sector: Israel’s Unmanned Aerial Vehicle (UAV, or drone) business is now a world-class one. The country is the largest exporter of UAVs in the world, selling technology worth more than $500 million per year, according to a recent Frost & Sullivan report. Combining depth of military operational experience with a wealth of innovative, entrepreneurial energy and the ability to manufacture at low cost, Israel has a huge competitive advantage in the field. “A great number of Israeli start-ups are trying to utilize the experience and information gained from the militarized application of UAVs to new, groundbreaking civil-commercial applications,” states an Israeli aerospace industries report. Two such companies have already raised millions of dollars in funding from international sources. Airobotics produces surveillance and industrial drones, helpful in mapping and in remote locations, and used by energy companies, for example. Flytrex builds small drones that can transport packages, in competition with commercial delivery companies. Other devices track flight paths, weather conditions and statistics. Such companies are proving irresistible to large multinationals wishing to expand their commercial portfolio into new areas of technology and commerce, such as logistics and geospatial information. With thousands of Israelis passing through the military system each year, learning how to develop, build and manage complex aerospace systems, the country further presses home its competitive advantage in the sector. “You have 18-year-old kids, bright people who’ve been through a screening process, getting involved in sophisticated, large-scale tech projects,” says an Invest in Israel spokesman. “They get a very deep understanding of the most advanced technologies, while learning teamwork and management. So by the time they leave the army and reach the commercial sector, they have five or seven years’ experience working on high-end projects.” Drone and aerospace technology employs sensors, optics and artificial intelligence—all areas in which Israeli businesses excel. As a consequence, the world’s largest aerospace corporates have flocked to the country. Pratt & Whitney, Rolls-Royce, Lockheed Martin and Airbus all have operations in Israel and many have dramatic expansion programs. At the top end, companies such as Israel Aerospace Industries (IAI) have won contracts worth billions of dollars. In April 2017 it announced a series of deals for air and missile defense systems with the Indian Army, along with others, for the first Indian-built aircraft carrier. IAI president Joseph Wales describes the development as “an enormous expression of confidence by the government of India in IAI’s capabilities and advanced technologies.” So far in 2017 IAI has signed other contracts worth hundreds of millions of dollars with partners in South America and in Asia, to supply targeting and surveillance technology. At the forefront of aerospace technology, a host of Israeli companies are developing applications in 3D printing relevant to aviation. As one Israeli industry report states: “Digital supply will replace physical product supply. Instead of supplying precise, finished components, suppliers will sell raw materials and design data.” Companies in this arena include Elbit, Cyclone and a consortium called Atid (which means “future”), where partners develop generic 3D-printing technologies for titanium aircraft components. “The 3D printing industry in Israel is not like anything else in the world,” says Eyal Eliezer, head of marketing and strategy at Invest in Israel. “It is a great example of the Israeli ability to think outside of the box and bring new ideas, which seem unrealistic at the beginning, to be an everyday reality.” Another Israeli company, XJet, has developed a pioneering inkjet printing technology for liquid metal, using nanoparticles in liquid suspension to build metal parts. According to XJet’s chief executive officer, Dror Danai, this technology offers a higher degree of accuracy than other 3D printing systems. Israeli-Chinese private equity fund Catalyst CEL has invested $25 million in XJet, on top of an earlier fundraising round in 2014. “When we speak about manufacturing in Israel, we are not speaking about the past—we talk about the future,” says Eli Cohen, Minister of the Economy. “Israel’s innovative 3D-printing ecosystem is one of the building blocks of Israel’s position as a manufacturer of the future.” “There’s a multibillion-dollar market for this,” claims Catalyst managing partner Yair Shamir. And if this market can include the vast Chinese manufacturing sector, the rewards could be astronomical. For the Israeli aerospace market as a whole, the rewards are already extraordinary, as the country’s history of maintaining an active, well-equipped and resourced military force continues to transfer into the commercial domain, with remarkable results.
PERSUADING THE GIANTS of the automotive industry—General Motors, Volkswagen, Toyota—to set up R&D centers in a country with no car-making history is a pretty good illustration of “chutzpah.” It’s just one example of Israel’s audacious approach to 21st-century business. “The car has become a computer on wheels,” says a senior Israeli technology consultant. “So when you look at information technology connectivity, sensors, artificial intelligence, it brings together a lot of things where Israel has great capabilities.” Such is its concentration of relevant technologies, Israel has become the hub of a multi-billion-dollar development network, attracting the world’s largest tech and automotive players. Some have set up research and development (R&D) facilities—General Motors invested heavily here in 2003—while others have launched accelerator programs, joint ventures with Israeli companies, manufacturing bases and supplier relationships with some of the 500-plus Israeli automotive businesses. The most eye-catching recent example was Intel’s acquisition of autonomous-driving tech company Mobileye in March 2017, for $15 billion, the largest ever purchase of an Israeli tech company. This industry-shaping deal confirmed the importance of mobility in the future of tech businesses generally, taking Intel into a whole new field of operation, and confirmed Israel as the world’s foremost location for automotive tech development. “We expect the growth toward autonomous driving to be transformative,” says Mobileye co-founder Ziv Aviram. “It will provide consumers with safer, more flexible and less costly transportation options.” Eli Cohen, Minister of the Economy, sees Intel’s acquisition of Mobileye as “an important signal to the world: if you look to the future of mobility, you should think of Israel.” This was the most recent and biggest in a long series of Israeli automotive acquisitions. Google bought mapping company Waze for $1.1 billion in June 2013 and the technology now provides 70% of the traffic data for Google Maps. Rival to taxi technology firm Uber, Israeli company Gett received a $300 million investment from Volkswagen in May 2016. Apple paid $350 million for 3D sensor business PrimeSense in 2013, while Japanese carmaker Harman acquired automotive-security company TowerSec for $75 million in 2016. Israel now boasts more multinational investment in automotive development, per capita, than any other country. This is particularly notable, since Israel has no native automotive industry. Despite this, the country has turned itself into a very magnetic hub for automotive development. Hundreds of international delegates from the world’s major automotive companies attend the annual Ecomotion event in Tel Aviv each May, for example. Israel’s competitive advantage in the sector has grown rapidly. Much of this comes down to innovation. Israel lacks easy access to hydrocarbons, so has innovated on automotive fuel sources, including liquid hydrogen and electric propulsion. The country aims to reduce oil use in transportation 60% by 2025, to improve both its security and sustainability. Israel has spent decades developing sophisticated defense systems, which can spin off into successful commercial products. And its entrepreneurial culture is increasingly seen as an ideal fit for multinational automotive companies seeking new technologies and ideas. Entrepreneurs thrive on disruption, and few sectors are currently so disrupted as automotive. As a Roland Berger automotive and smart mobility report on Israel points out: “Trends such as electric, autonomous and smart mobility… are attacking the very foundation of the business model employed by established players.” The digitization of mobility, it argues, requires new competencies such as object recognition and behavior projections. “These are precisely the fields where Israel has developed competencies in the past, often targeting military defense applications or big data applications for intelligence services.” Major industry players such as GM, VW, Daimler, Ford, Renault-Nissan and Harman are increasingly aware of the concentration of capability in Israel and of the multiple advantages of investing in the country. Serge Passolunghi, director of Renault Innovation, says: “The dynamic environment in Israel is an opportunity that will serve both to promote the electric vehicle and foster creativity on mobility.” And at Daimler, which launched a new automotive technology center in Israel in 2016, board member Prof. Thomas Weber adds that the center “seeks to boost the global R&D outline with the help of Israel, the high-tech nation.” Israel is bursting with relevant automotive skills, knowhow and innovation, serving both the R&D and manufacturing sectors. “This industry is breaking new records every single day,” says Eyal Eliezer, head of marketing and strategy at Invest in Israel. “The long list of MNCs already active in Israel in this industry, together with the high level of technologies and products coming out of it, all show that the future of mobility starts here.”
AT MEETINGS AND conferences in Israel, the talk is of IPOs, big data, analytics. Every second person, it seems, has an MBA or a degree in computer science. They detect connections between people, businesses, ideas and products. They sense opportunities. They are a living embodiment of IoT technology itself. As a highly connected society, it makes sense that Israel should excel in the Internet of Things sector. “Israeli entrepreneurs master some of the core competencies that are key for Internet of Things (IoT),” says Yair Snir, managing director at Dell Technologies Capital and former head of European business development at Microsoft. “Big data and predictive analytics [are] critical in order to make sense of a huge volume of signals generated and gathered from multiple connected devices.” Mr. Snir attributes Israel’s facility in the sector to its defense capabilities, where accurate, high speed, data-intensive connections are imperative, through to the country’s highly-developed medical-technology sector and then cascading down to a thousand smaller devices. His comments and his former role at Microsoft help to explain why the California-based information technology (IT) giant has invested so heavily in Israeli R&D facilities. The IoT sector is a great example of Israeli’s urge to create solutions and to solve problems. The country has developed a lot of sensors—such as optical and audio—and now is finding ways to connect them. “First, we ask how can I improve sensors to measure particular things? And second, when I collect this data, how can I connect it to a mainframe and report alerts, or tell a remote user about a problem?” says Noam Bar-Gal, head of multinational collaboration at the Israeli Innovation Authority. Israel’s genius is to harvest this vast wealth of data, analyze it and create useful information for organizations and individuals, and improve IoT infrastructure itself through smart use of data, in combination with the country’s global leadership in advanced manufacturing and industrial control systems. The existing and potential applications of IoT are as varied as commerce itself. There have already been major advances recorded in Israel’s agriculture, health-care and automotive sectors, as the number of connected objects and devices has multiplied exponentially. From domestic appliances to industrial manufacturing, IoT is transforming the environment dramatically. Israel’s role in this transformation is increasingly clear, as acquisitions ranging from Mobileye, bought by Intel for $15 billion, to Servotronix, acquired by Chinese appliances company Midea for $170 (both in early 2017) clearly demonstrate. “The next 20 years will change every function and procedure, whether automotive, finance or health care,” predicts Yoram Tietz, co-managing partner at EY. “If you’re looking for answers to complex problems involving multiple disciplines, I don’t think there’s a better place than Israel. From a technology point of view, I don’t think we’ve seen anything yet.” “Israel is situated to be a leader in the fourth industrial revolution,” adds Eli Cohen, Minister of the Economy. “The Ministry is supporting this ecosystem, and we are confident we will ripen the fruits with more advanced manufacturing coming to Israel.” The shadow looming over IoT’s relentless expansion, however, is security: once everything is connected, how can we prevent malicious actors stealing information or disrupting activities? For some years, Israel’s cyber-security sector has ranked number one globally, exporting billions of dollars’ worth of software products and services. Israeli antivirus software protects one in every six computers worldwide, according to data published by the country’s Innovation Authority. “In the eyes of Israeli cyber security pioneers, the future belongs not only to those who create it, but also to those who secure it,” writes Kirk D’Souza in a 2017 IoT report from NoCamels Israeli Innovation News. He lists a raft of Israeli companies dedicated to securing IoT applications, from automotive tech developers such as Argus Cyber Security, which protects cars from being controlled by external agents, and Karamba Security, which ensures a vehicle’s engine controls are not disrupted, to Dojo-Labs and SecuriThings, which protect domestic IoT devices, to Secret Double Octopus, which keeps communication between devices safe through a form of encryption. In the past two years alone, Microsoft has acquired three Israeli IT security companies: Aorato (enterprise security), Adallom (cloud security) and Secure Islands Technologies (data and file protection). These means of safeguarding IoT’s many positive gains will grow ever more important, confirming Israel’s place at the heart of the fourth industrial revolution.
With regional instability, a volatile political system and a sustained threat of terror, Israel has all the ingredients for an unstable economy. However, these uncertain conditions have given Israelis the determination and spirit to build a growing economy, with conditions ripe for international investment. Aided by extremely low inflation and an unemployment rate of 4.8%, Israel recently placed third on a list of the world's most stable and promising economies. On top of that, Bank of America Merrill Lynch noted that the Bank of Israel was “defying gravity” by checking the appreciation of the shekel against the dollar. The report also assessed the Israeli economy as “on a robust recovery path with growth rates running at 3% to 4% levels.” Israeli Prime Minister Benjamin Netanyahu is very keen to highlight the stability that his country enjoys and last year welcomed Israel’s new A+ credit rating from Fitch Ratings, attributing it to his government’s “responsible economic policy.” “More good news for the economy of Israel: the international credit rating company Fitch raised Israel’s credit rating to the level of A+ with a stable outlook. Israel is rated at this high rating in all three international companies: S&P, Moody’s and Fitch,” the Prime Minister wrote at the time. These accolades are not surprising, considering Israel has an increasingly strong and resilient economy and has seen consecutive years of significant gross domestic product (GDP) growth above that of the Organisation for Economic Co-operation and Development (OECD) and the U.S. Since the beginning of the 21st century, Israel has been a world leader in national investment in research and development (R&D) when calculated as a percentage of GDP, maintaining a steady average of 4.2%. One of the main factors that contributes to Israel’s healthy economic environment is a highly skilled workforce, with 47.4% of the population graduating from university or third-stage education. Marking an 11% rise from the previous year, Israeli high-tech companies raised an all-time annual high of $4.8 billion in 2016, a report earlier this year by IVC Research Center and attorneys Zag-S&W shows. The average financing round reached $7.2 million in 2016, 19% above the $5.1 million five-year average, according to the report. “As expected, 2016 ended as a record year in Israeli high-tech capital raising,” says Koby Simana, chief executive officer of IVC Research Center. While regional instability is a real threat to the Israeli economy, Israel’s location is also one of its strengths. Sitting at the meeting point of Europe, Asia and Africa, Israel is at the center of the world in terms of market access. This strategic geographic advantage and highly stable economy have led to a number of international agreements being signed, including 11 free-trade agreements (FTAs) covering 44 countries. In addition, as a member of the World Trade Organization, Israel has signed numerous other multilateral agreements such as the Information Technology Agreement (ITA), an agreement with 82 participants representing 97% of world trade in information technology products. Israel’s Ministry of Economy and Industry invests heavily to promote foreign investments, with programs and services designed to address every phase of the investment process. Comprehensive governmental incentives for research and development, tax, capital, labor, land allocation and intellectual property registration make Israel an attractive place for foreign investors, who all play their part in adding to the impressive growth. The ease of obtaining funding for high-risk technological ventures means that Israel has far outperformed other countries in Venture Capital volume per capita. According to IVC Research Center, in 2015, proceeds from Israeli start-up exits exceeded $9 billion and venture capital investment stood at $4.43 billion—the highest annual amount ever. With such a lucrative economic environment, Israel is reeling from the advances of multinational companies who are looking to get in on the action, and as global politics become increasingly more uncertain, the Israeli economy seems to be a relatively calm place in a very stormy world.
“It is a complete Intel within a single country,” Intel chief executive officer Brian Krzanich says of the way his company has benefited from Israel’s research and development (R&D) manufacturing proximity advantage. “It’s about the place where you have a complete cross-section of the company in one country,” he adds. Intel is just one of a multitude of organizations that understand it is far more productive to locate the full product-development cycle in one location and that Israel is an attractive place to do this, because the small but innovative nation has established itself as a hotbed for both R&D and advanced manufacturing. The giant microprocessor and integrated circuit corporation has one of its largest manufacturing facilities in Israel, in close proximity to its local R&D center, and its most strategic processors are developed in Israel. The advantages of developing and designing a product in parallel with the manufacturing process have been proven in numerous studies and, while it’s common in many countries, the Israelis have adopted the practice and made it their own unique success story. This is thanks to a highly educated population (47.4% with tertiary education, compared to the OECD average of 33.3%), known for their audaciousness and entrepreneurial spirit. Israel may not be the biggest country in the world, but if there is one thing Israelis know how to do it’s turn a problem into a solution. The country’s small size is one of its main assets, and the close physical proximity between R&D and manufacturing, as well as highly interrelated industries working close by, give Israel an edge. A world leader in the field, Israel invests 4.1% of its GDP in R&D projects, and continues to attract major investments from leading multinational corporations including Cisco, IBM, Johnson & Johnson, and GE. Recognizing the impact R&D centers have on the country’s economy, Israel’s government offers a wide range of incentives through the Israel Innovation Authority in the Ministry of Economy and Industry for the establishment of new R&D centers. Flex, the second-largest global provider of electronics manufacturing services, recently opened its new design center in Haifa, offering local and international customers an ISO-certified environment to explore and collaborate on new product design. With over 40 design engineers on site, prototypes can be developed, tested and designed for scale production. The new Haifa center is the only Flex center in the EMEA region that offers the full range of sketch-to-scale capabilities, and it enables Flex Israel to manage the entire lifecycle of its products. “Flex is one of the key partners for the State of Israel in helping to build the Israeli economy—and we will help in any phase in the process,” says Ziva Eger, Directory of Foreign Investments and Industrial Cooperation. “The Government of Israel sees many multinationals and we are open for business, working every day to bring more and more companies like Flex to Israel. We are planning to bring up to 20 factories to Israel by 2020 that combine R&D and production in Israel—just like Flex does.” American corporation Applied Materials has been part of the successful Israeli model since it opened its first Israeli centers in 1997, with the acquisitions of the Israeli companies Orbot and Opal. Applied Materials Israel is the company’s only international site involved in the entire business process, which includes research, development, manufacturing and marketing. “The Israeli unit enables us to provide the technological advantage that differentiates us from our competitors and enables us to expand our market share,” says Michael R. Splinter, former president and CEO. The Israeli operation, which is unified under one roof, has an advantage over other Applied teams around the globe, which has allowed it to develop some of the company’s most strategic products. This is a prime example of how the R&D manufacturing proximity advantage makes the production process much more dynamic, enabling a far more efficient “learning by making” process.
Israel has marked its place firmly on the global map in terms of technological innovation. Now industry experts are keeping a close eye on how the country continues to use advanced technologies in order to establish itself as an important home for advanced manufacturing, with many companies looking to become a part of the unique ecosystem. Bet Shemesh Engines Holdings is one company using Israel’s ripe advanced manufacturing environment to its advantage. The manufacturer of jet engine parts recently signed a $173 million agreement with German company MTU, under which the Israeli company will manufacture parts that it previously supplied to the German company. Intel has also tapped into Israel’s advanced manufacturing environment by establishing one of its largest manufacturing facilities worldwide in the southern Israeli city of Kiryat Gat. In 2005 the company opened its manufacturing plant, valued at approximately $3.5 billion, and since then has enjoyed over $39 billion in total exports from Israel. In a sign that the growth shows no sign of letting up, Intel has also invested more than $6 billion in expanding the facility’s capabilities and transforming it to work on its newest 10 nanometer technologies. In recent years, Israel has used its already booming information technology industry to capitalize on the growing connection between manufacturing and the Industrial Internet of Things (IIoT) to create a thriving culture of advanced manufacturing processes and companies. Advanced technologies, such as big data and the cloud, sensing systems, powerful processors and industrial robots, have created a tipping point, leading to radical changes in traditional manufacturing processes. With so many benefits, advanced manufacturing is increasingly popular because it allows enterprises to become more efficient by facilitating short-run production as well as manufacturing products with special features that have not been possible before. The innovative new methods create other benefits, including rapid response to market needs, dramatic savings in manpower, and the ability to gather information and control manufacturing processes virtually, with no need for human intervention. Recent radical changes taking place in the manufacturing process have seen giant multinational companies in industries characterized by an intense assembly process bringing manufacturing back to developed countries. For example, consumer electronics can now be made using advanced robots, additive manufacturing processes and IT technologies and sensors. The holding company Berkshire Hathaway was so impressed with Israeli multinational metal cutting tools company ISCAR Metalworking that it acquired it in 2006. The advanced manufacturing at ISCAR involves a computerized control system (distributive network control or DNC) that delivers computerized production plans for automatic lathes and milling machines, which are designed to provide ultimate flexibility in the production process.
Home to over 2,000 start-ups founded in the past decade, as well as 300 research-and-development (R&D) centers of multinational corporations, the Israeli technology and innovation scene shows no signs of slowing down. Although Israel lacks natural resources and raw materials it has still been able to attract the likes of Google, Facebook and Microsoft, and that’s mainly down to its greatest asset— its people. In general, Israelis are happier than people in most developed countries; when asked to rate their general satisfaction with life on a scale from 0 to 10, Israelis gave it a 7.1 grade, higher than the Organisation for Economic Co-operation and Development (OECD) average of 6.5. This is proof that, even with a number of factors working against them, Israelis always seem to find a positive spin on life. This determination to make the best of things is one of the major driving forces behind Israel’s place as a world leader in technological talent. Education has played a significant part in shaping Israel’s success and producing the talent that necessary to create such a thriving ecosystem. In 2013, the OECD named Israel the second most educated country in the world in terms of the percentage of individuals over 25 years of age who had successfully completed university. In terms of academic degrees earned per capita, Israelis occupy an impressive third place in the global rankings. Many of Israel’s universities are also internationally recognized, with the Technion – Israel Institute of Technology and the Weizmann Institute of Science ranked among the top 20 computer-science institutions in the world. The story of Israel’s skilled workforce doesn’t end at a quality education system. Israel is also a melting pot of different cultures and this has contributed significantly to how the country functions. With immigrants coming from all over the world, university campuses enjoy a distinctly multicultural feel that allows for Israeli students to gain exposure to different mindsets. Many of the immigrants who arrive in Israel bring with them skills already learned in their home country, as well as different viewpoints and ways of doing things. For example, in the 1990s, the establishment of incubators coincided with mass immigration from the former Soviet Union, which brought an estimated 65,000 engineers to Israel, many of whom were experts in their respective fields. Realizing that a skilled workforce alone can’t shape the economy, Israel spends more on R&D as a share of its domestic resources than any other developed country. Shelling out 4.25% of gross domestic product (GDP) on R&D, Israel tops the list of global spenders, with South Korea following closely behind at 4.23%. All this investment places Israel as the second most innovative nation in the world behind Switzerland, according to the WEF’s Global Competitiveness Report 2016-2017, which ranks countries’ competitiveness based on 12 categories, including higher education, innovation and technological readiness.
U.S. medical-device giant Medtronic plc is one of the latest multinationals slated to open new research and development (R&D) centers in Israel. It joins a long list of other companies, such as Facebook, Intel, Google and Microsoft, which have done the same. With government incentives and a thriving start-up scene, there are plenty of reasons why so many major multinationals have chosen to get in on the action and establish new R&D centers. Israel has become a natural environment for companies to develop and design products in parallel with the manufacturing process, and this is made possible by having highly interrelated industries working close by. Google opened its first office in Israel in 2006, when the search giant was still something of a start-up, and it currently employs over 600 engineers in the country. Google also has a dedicated start-up space known as “Campus,” which provides entrepreneurs with a place to start and grow their businesses. “The decision to invest in Israel was one of the best that Google has ever made,” Google’s Eric Schmidt says. “The United States is the number-one place in the world for entrepreneurs,” he admits, “but after the U.S., Israel is the best.” With offices in Tel Aviv and Haifa, Google’s team in Israel is responsible for solving complex problems like machine learning, data mining, and game theory, while products such as Waze, Google Autocomplete, Insights for Search, and Person Finder are all developed in Israel. “Israel is thriving in terms of innovation, because you have a culture that makes it possible to question authority and to challenge everything—you don’t follow the rules,” Mr. Schmidt adds. Noam Bardin, chief executive officer (CEO) at Waze, the Israeli GPS-based geographical-navigation application program that is owned by Google, says Israelis are not willing to give up until they get what they want. “In Israel today there is a generation of entrepreneurs who have experienced success and failures and lived long periods abroad. We [Waze] were the first Israeli ‘unicorn,’ but in the Israeli ecosystem there are many factors that can cause the rise of many more.” When Facebook acquired the Israeli start-up company Onavo in 2013, it paved the way for the social media giant to open its first R&D center in Israel. “The technology sector in Israel itself is thriving,” says Facebook chief operating officer Sheryl Sandberg. “Israel I think stands among many countries as a country that has really not just embraced technology, but become a start-up nation,” she adds. Intel first set up in Israel over 40 years ago and is currently one of the biggest employers in the country, with 11,000 workers across several sites. As Israel’s largest privately held employer and exporter, Intel Israel has established itself as an integral part of Israel’s high-tech industry and an important component in the country’s economic foundation. “It is a complete Intel within a single country,” Intel CEO Brian Krzanich says. “It’s about the place where you have a complete cross-section of the company in one country,” he continues. “We think of ourselves as an Israeli company as much as a U.S. company.” Microsoft has grown its R&D team in Israel to about 1,000 people since it opened its first office in the country 25 years ago. “The innovation going on in Israel is critical to the future of the technology business,” says Bill Gates, founder of Microsoft. “The quality of education is one of the key factors that makes Israel so unique.” Warren Buffett’s Berkshire Hathaway conglomerate holding company acquired Israeli multinational metal cutting tools company ISCAR Metalworking in 2006 and has since been expanding its advanced manufacturing capabilities using a computerized control system (DNC) that delivers computerized production plans for automatic lathes and milling machines. “If you’re going to the Middle East to look for oil, you can skip Israel. If you’re looking for brains, look no further. Israel has shown that it has a disproportionate amount of brains and energy,” says Mr. Buffett. Amazon, the world’s biggest online retailer and provider of cloud-computing services, has experienced significant successes in Israel and is expected to expand its R&D operations in the country in the very near future. “We have been extremely impressed with the creativity and strong engineering talent available in the country [Israel],” says Werner Vogels, Amazon’s chief technical officer and vice president. “Locating the development of key parts of Amazon’s business in Israel further accelerates our efforts to deliver innovation to customers around the world.”
LMINISTRY OF ECONOMY AND INDUSTRY
It’s no secret that Israel’s entrepreneurial culture is one of the main reasons why the country has been able to establish itself as a center for start-ups and innovation. It’s also no secret that Israelis never miss an opportunity to make the most of what they have, and that is why the government-sponsored Israel Innovation Authority is selecting 12 incubators and accelerators to host foreign entrepreneurs in Israel as part of its Innovation Visas pilot program. The program gives foreign entrepreneurs the chance to learn from the Israeli ecosystem and they are entitled to government support if they go ahead with establishing a start-up in Israel. “We believe that entrepreneurs can benefit from working in our ecosystem and seeing how things are done here,” says Salit Lev, the industry relations manager at the Israel Innovation Authority who heads the Innovation Visas track. “But Israel will also benefit from this interaction, as it will lead to cultural diversity and expose our entrepreneurs and start-ups to different ways of thinking.” According to Lev, Israel already has enough of its own entrepreneurs and so the program is not necessarily intended to attract entrepreneurs to Israel. However, it aims to provide a framework to enable entrepreneurs to come to set up their ventures in Israel if they so desire. The innovative culture rampant in Israel has led to the highest concentration of start-ups in the world after Silicon Valley, with approximately 7,000 active start-ups and approximately 1,000 new start-ups emerging every year. Tel Aviv is ranked sixth best start-up ecosystem in the world, according to Start-up Genome’s 2017 report. Israelis have a reputation for being risk takers, and this has a lot to do with the conditions they live in. The state itself was founded as a safe haven for Jews fleeing persecution around the world and it finally gave them the opportunity to stand up for themselves and turn challenges into assets. With a determined attitude and some out-of-the-box thinking, the pioneers who built the state quickly turned swamps and deserts into farming land and thus Israel became a world leader in water and agricultural technology. Drip irrigation is just one of many examples of this. Instead of settling for the fact that the country has limited natural resources, Israelis got straight to work on developing alternative fuel options. Regional instability and the constant threat of terror have forced Israel to build up a strong military, and with that have come countless technological breakthroughs and innovation. Having so many challenges to deal with, Israelis have built up a mentality that is direct, blunt and to the point, so as to not waste time on the trivial, and they are usually very transparent when it comes to doing business. Given the level of activity coming out of Israel it’s easy to forget that it’s a relatively small and young country, factors that give it a competitive advantage. Israeli culture is very socially oriented and there is a sense that everyone knows one another. While they like to argue, at the end of the day, there is a willingness to help one another. “There is not a better place than Israel. In any way. The people, the solidarity, the talent, the students, the employees,” says Prof. Amnon Shashua, co-founder and chief technical officer (CTO) at Mobileye. “In Silicon Valley, only at the very top will you find these kinds of people.” Prof. Shashua is a typical example of an Israeli innovator who succeeded by not following the rules. After Intel purchased Mobileye for $15.3 billion in cash, the biggest acquisition in Israeli history, he made his mark as one of the most successful entrepreneurs in Israel. Taking advantage of Israel’s top-level higher education system, Prof. Shashua gained a bachelor’s degree in mathematics and computer science at Tel Aviv University and later a master’s at Weizmann Institute of Science. While working as a senior lecturer at the computer science department of the Technion – Israel Institute of Technology in Haifa, he set up his first start-up, CogniTens. CogniTens developed vision and measurement systems for quality control in the vehicle and aircraft industries, but was sold in 2007 for a loss. In true Israeli fashion, Prof. Shashua was determined not to give up and, in 1999, with the help of Ziv Aviram, he evolved his multiple-view geometry research into Mobileye. The company has since developed systems-on-chip and computer vision algorithms for detecting pedestrians, vehicles, traffic signs and lanes, becoming a market leader in the autonomous-driving sector.
“In Israel, a land lacking in natural resources, we learned to appreciate our greatest national advantage: our minds,” former Israeli President Shimon Peres once said. “Through creativity and innovation, we transformed barren deserts into flourishing fields and pioneered new frontiers in science and technology.” Israel’s successes in innovation, digitalization and manufacturing were something that always brought pride to Mr. Peres. Now Israel has taken it one step further, offering a unique cross-sector solution and becoming a world leader in numerous different sectors. When Intel agreed to buy Mobileye, an Israeli technology company that develops vision-based advanced driver-assistance systems, for $15.3 billion, it put Israel’s automotive and smart mobility industry firmly on the global map. As the pace of technological advances in vehicles increases rapidly, Israel is becoming the international go-to place for automotive innovation. Mobileye, along with other Israeli companies such as VocalZoom, Redbend and Guardian Optical Technologies, is developing advanced products designed to assist drivers and reduce the risk of road accidents. A recent report published by global strategy consulting firm Roland Berger focused specifically on Israel’s role in the smart-car revolution and found that there are over 500 local companies devoted to various aspects of the smart-car industry, which has attracted some $4 billion in investment over the past four years. The Israeli industry is known worldwide for its ability to develop new, cutting-edge solutions for existing and emerging global needs. General Motors is another company riding the autonomous-car wave: in the past year it has stepped up a gear by expanding its research-and-development (R&D) center in Israel, the only such investment by a foreign automaker. The various manufacturing companies in Israel support product-development cycles from the initial design phase to final production. This is a significant capability, with unique advantages over the low-cost mass production that is available in other markets. As one of only 12 countries in the world with independent global satellite-launching capabilities, Israel has also established itself as an important player in this industry. The Israeli space industry has significantly developed its installed equipment capabilities as well, and has become a leader in nanosatellite technology. In cooperation with the defense-systems maker Rafael, and Israel Aerospace Industries, the Israel Space Agency has developed nanosatellites as part of a project known as Samson. The satellites, which each weigh just eight kilograms (16.6 pounds), were developed using Rafael’s expertise in miniaturization. This is just one example of how Israeli companies are to be found at every point along the global value chain, from aircraft original equipment manufacturers to advanced electronic systems and precision metal components. Top-level human resources and highly effective work processes, together with academic collaborations and close proximity to Israel’s hi-tech sector, provide ripe conditions for innovation.
Even if they’ve never been to Israel, Americans visiting Tel Aviv or Herzliya are likely to feel right at home. That’s because some of the biggest names in American business—Google, Microsoft, IBM, HP, and a host of others—have offices and research and development (R&D) centers there. And these aren’t just one-man operations: Apple’s Herzliya R&D center is the second largest one the company has anywhere in the world, and more of its development takes place in Israel than anywhere else outside the U.S. And it’s not just American firms. Israel is home to large facilities belonging to tech companies from Europe and the Far East as well: Sony, Samsung, SAP, and many others do a great deal of work in Israel. As one government official quipped, “Israel is not just a land for the ‘ingathering of the exiles,’ but for the ingathering of multinationals, too.” Indeed, Israel is home to the major facilities of over 300 multinational corporations (MNCs) who have found something —actually a great many things—to like about doing business in Israel. Those things include access to an educated, young workforce and one of the best trained pools of high-tech workers on the globe. Relative to population, Israel has the highest concentration of engineers in the world; Israelis rank in the world’s top four national populations in acquiring top-level tech skills, receiving third-level academic degrees (PhDs), and in the percentage of research personnel relative to population. That kind of educational achievement is key for the development of the new technologies and products that will remake tomorrow’s world, making life better, safer, and cheaper for everyone. “Quality of education is one of the key factors that makes Israel so unique,” according to Microsoft chief executive officer Bill Gates. “The innovation going on in Israel is critical to the future of the technology business.” Israel is known far and wide for its army, but many are less familiar with its “other” army—nearly a quarter of a million workers, almost half of whom work in tech. So it’s the innovation MNCs come to Israel for, but without access to resources (for which, read money), all that talent would likely go to waste. Fortunately, Israel is home to a well-developed investment sector, which is highly innovative itself—and unlike in many other countries, is willing to take a risk on the Next Big Tech Thing, whether it comes from a start-up, a mature firm, or an MNC. According to the Organisation for Economic Co-operation and Development (OECD) figures, Israel leads the world in R&D investments as a percentage of gross domestic product, far ahead of other business and tech powerhouses like Japan, Finland and the US. While MNCs usually bring their own investment money, the small start-ups that many of them collaborate with on new tech don’t, and here the Israeli government helps out. The government-sponsored Innovation Authority encourages investment in new projects with grants and other assistance. New tax policies, designed to encourage more foreign investment, like new crowdfunding rules (Israel is home to one of the largest crowdfunding firms on the planet), have helped create a situation among Israelis where, if you’re not working in high-tech, you’re probably investing in it. For many people, bigger is usually better. The opposite is often the case for tech developers. As a small country, Israel’s tech centers are within no more than a 90-minute drive from each other (less when there’s no traffic, which is usually the case), so resources that researchers and developers need—whether it’s access to a university lab with specialized equipment, or consultation with an expert over a cup of coffee—are close by. There’s no need to get on a plane and fly halfway across the country, or the world, to get what you need. There aren’t many places in the world where access to that kind of staff, resources and infrastructure is possible, according to co-founder and chief technical officer (CTO) of Mobileye and co-founder of OrCam, Prof. Amnon Shashua. “There is not a better place than Israel, in any way. The people; the solidarity; the talent; the students; the employees: in Silicon Valley, only at the very top will you find these kinds of people,” he says. Clearly, there are lots of pluses for multinationals in Israel, but for MNCs the bottom line is the bottom line, and it’s the talent, infrastructure and conditions that lead them to develop the world-changing products and services that keep them in Israel— and keep them coming back for more. Intel, for example, undertook development that contributed to many of its top processors, as well as its RealSense camera, at its numerous R&D facilities in Israel; key elements of Microsoft’s networking technology got a big boost from Israeli-based R&D. After an acquisition, Hewlett-Packard made great strides in the development of laser printing in Israel, while Apple is hard at work developing tech for its next generation of iPhone in Herzliya. As Apple CEO Tim Cook says, “Apple is in Israel because the engineering talent here is incredible. You guys are incredibly important to everything that we do and to all the products that we build.”
Hot, besieged by enemies, and far away from the places top business officials frequent, Israel would seem to be the last place you would want to locate a key element of your operation. Not if you’re Apple’s chief executive officer (CEO), Tim Cook. As far as he’s concerned, Israel is one of the best places in the world for his company to develop new products and technologies. Israel is home to Apple’s second largest research and development (R&D) facility anywhere, employing over 1,000 people, mostly engineers. As Mr. Cook told his Israeli staff on a recent visit, “Apple is in Israel because the engineering talent here is incredible. You guys are incredibly important to everything that we do and to all the products that we build.” But Apple is just one outfit. There is a plethora of top tech companies from around the world—over 300—that have chosen to set up an R&D or production facility. And all of them have highly complimentary things to say about the country. “We have been extremely impressed with the creativity and strong engineering talent available in the country,” says Werner Voegels, chief technical officer and vice-president of Amazon. “Locating the development of key parts of Amazon’s business in Israel further accelerates our efforts to deliver innovation to customers around the world.” What do multinational companies look for when deciding where to locate their facilities, and what does Israel offer such firms? Why choose Israel to set up an R&D or production facility over other locations that are just as determined to get the business as is Israel? And what have the nearly 300 multinational corporations (MNCs) that have already set up substantial operations in Israel—including Facebook, Intel, Renault, Google, Apple and HP—found that prompted them to set up operations in Israel? The reasons MNCs choose Israel are as varied as their business interests, but HP president of 3D printing, Stephen Nigro, summed it up well when he said: “Israel has always had national strengths in education, R&D, government-industry ties and visionary business leaders. That’s what puts it on the leading edge of innovation. We knew that when we first invested in Israel’s digital printing press technology in 2001.” From a government that is very eager to work with MNCs, to an advanced pool of potential employees, to a ‘start-up spirit’ that pervades the entire tech ecosystem, MNCs find in Israel an ecosystem that exists in few places in the world, according to co-founder and chief technical officer (CTO) of Mobileye and co-founder of OrCam, Prof. Amnon Shashua. He has seen both sides and says that, “There is not a better place than Israel, in any way. The people; the solidarity; the talent; the students; the employees: in Silicon Valley, only at the very top will you find these kinds of people.” The government has come a long way in showing its willingness to work with MNCs, down to its latest overhaul of the Israeli tax code to create an even more favorable atmosphere for investments. Part of that overhaul is a major cut on taxes on dividends and capital gains for high-tech companies. Add to that grants and other assistance from the government-sponsored Innovation Authority to encourage investment in peripheral areas, and you find a winning environment in which to do business. Google, for example, a company that has invested heavily in Israel and has two major R&D centers here, has experienced this first hand, according to spokesperson Eric Schmidt, who says that, “The decision to invest in Israel was one of the best that Google has ever made.” Israel’s R&D is world-renowned, and deservedly so. Among Israel’s notable educational achievements, the country is among the world’s top four national populations in acquiring top-level tech skills, in the attainment of third-level academic degrees (PhDs), and in the percentage of research personnel relative to population. Most significantly for MNCs, Israel has the highest concentration of engineers in the world. The result is an educated, young workforce that constitutes one of the best trained pools of high-tech workers on the globe. Werner Vogels, Amazon CTO, says that his company has been “extremely impressed with the creativity and strong engineering talent available in the country. Locating the development of key parts of Amazon’s business in Israel further accelerates our efforts to deliver innovation to customers around the world.” But besides being well trained for their jobs, Israel’s tech workforce has something else: an intrinsic determination to succeed. Israeli entrepreneurs are known far and wide for their lack of “fear of failure,” their willingness to fail in the pursuit of their vision. In some entrepreneurial circles, you’re not really an entrepreneur unless you’ve failed at least a couple of times. The approach is “try, try again until you’ve succeeded”—and that attitude seeps down into the work population as a whole. Israel is called the Start-Up Nation, but it’s more than mere marketing; entrepreneurship plays a vital role in all aspects of Israel’s tech ecosystem. If in some countries kids dream of growing up to be a baseball or soccer star, many kids in Israel dream of growing up to be a “tech star,” the CEO of a company that goes public or gets acquired by a multinational. The motivation of those kids persists when they become adults, and many of them try their hand at starting their own high-tech business. It’s that motivation for success that led Microsoft founder Bill Gates to utter his famous saying: “With the right kind of motivated, talented people, Israel can enable companies both large and small to achieve their goals more quickly and efficiently. The quality of education is one of the key factors that makes Israel so unique.”
In its short history, little Israel has had some big accomplishments, developing world-changing technology using the resources at its disposal. Drip irrigation was invented in Israel; smart phones as we know them probably wouldn’t exist without Israeli innovations in communications; and Israeli cows are the biggest milk producers in the world, as measured by liters of milk produced per cow. And that’s just so far; Israeli innovation is powering new revolutions, like transportation (Waze, MobilEye, and others), 3D vision tech (Intel’s RealSense camera was developed in Haifa), and biotech (Given Imaging’s Pillcam, and many others). Where does all this innovation come from? There are many theories. As a natural resource-poor country isolated from world markets, Israel had to develop its tech economy in order to thrive; the casual Israeli culture that encourages questioning and exploration prepares its young entrepreneurs for a life of innovation; the do-or-die need to defend the country led to the unprecedented development of defense technologies, which became the basis for Israel’s tech revolution. Actually, it’s all these things, and more—and all those parts add up to the sum of making Israel a global technology leader. It all starts with attitude—something of which Israel has plenty. Besides being known as the Start-Up Nation, Israel could just as easily be called the “entrepreneur nation.” The notion that they must, under any and all circumstances, start their own company has animated the life choices of a generation of Israeli kids, who look to the people who sell their companies or bring them public as role models. Not all succeed, but the fact that failure is an option means that Israeli entrepreneurs are far more willing than others to take risks. Those risks lead to new innovations and technologies—solutions that are often scooped up by multinational companies, which bring them to the world. As Google chief executive officer (CEO) Eric Schmidt says, “Israel is thriving because you have a culture that makes it possible to question authority and challenge everything. You don’t follow the rules.” Of course, attitude must be backed up with substance, and in this case, the substance is a well-trained pool of workers who have the necessary skills, both technical and entrepreneurial, to succeed. Relative to population, Israel has the highest concentration of engineers in the world; Israelis rank in the world’s top four national populations in acquiring top-level tech skills, receiving third-level academic degrees (PhDs), and in the percentage of research personnel relative to population. Indeed, according to Microsoft CEO Bill Gates. “The innovation going on in Israel is critical to the future of the technology business.” Innovation is often incremental; an entrepreneur will start out with a technology he or she has developed, and each start-up operation attempted sees a refinement of the tech. As an incremental process, entrepreneurs and tech workers at large companies need access to resources in a developed tech ecosystem in order to advance their projects. While many countries have such ecosystems, few have them within a 90-minute drive, as Israel does. Thus, developers of tech ideas and projects who need access to resources—whether it’s access to a university lab with specialized equipment, or consultation with an expert over a cup of coffee—are close by; there’s no need to get on a plane and fly halfway across the country, or the world, to get what they need. “There is not a better place than Israel, in any way,” according to Prof. Amnon Shashua, co-founder and chief technical officer (CTO) of Mobileye and co-founder of OrCam. “The people; the solidarity; the talent; the students; the employees: in Silicon Valley, only at the very top will you find these kinds of people.” There are many theories to try and explain this, but the results cannot be disputed: with a plethora of research facilities, a well-educated, relatively young workforce and top universities, Israel’s entrepreneurial environment is one of the best places in the world to develop new ideas, services, and products.
Not long ago, there was a clear demarcation between low-tech and high-tech—and the twain never met. This is no longer true: advances in manufacturing, and especially in robotics and Internet of Things (IoT) applications, mean that manufacturing today is as high-tech as the development of new processors or advanced communications systems. That’s good news for Israel—and for companies that are looking for new venues in which to produce advanced products. While China is, and will likely remain, the place to manufacture a huge variety of consumer and industrial products, specialized manufacturers who need to build advanced products—medical equipment, communications devices, defense-related items, and much more—need something more progressive than the commodity manufacturing facilities China is best known for. Israel turns out to be a surprisingly good choice for such manufacturers. The country has advanced expertise in robotics, vision technology, IoT technology, and other systems that are required for specialized, advanced manufacturing processes. Israel offers makers of products that require extensive engineering design, advanced communications and vision technology, 3D printed parts and other advanced features, a rich ecosystem—from high-tech manufacturing techniques to a large group of engineers and tech experts—that can help them bring their vision to life. A diverse group of international firms have chosen to produce such products in Israel. Probably the best known is Intel, which not only designs many of its advanced products in Israel, but also manufactures them here. In a recent deal with the Israeli government, Intel is upgrading its fabrication plant in the town of Kiryat Gat, preparing it for the production of its next generation of microprocessor components. But Intel is far from the only firm to be doing that kind of manufacturing in Israel. Flex (formerly Flextronics), a manufacturer of many specialized products in a wide range of areas, has a large manufacturing presence in Israel, as does Applied Materials, which produces semiconductors and other advanced equipment. Even seemingly “low-tech” products benefit from the robotization and advanced manufacturing techniques developed in Israel. It’s that approach that inspired American billionaire Warren Buffett’s Berkshire Hathaway to acquire Israel’s ISCAR metalworking concern in 2006—the company’s biggest non-insurance holding, and its first outside the U.S. As Mr. Buffett says, “If you’re going to the Middle East to look for oil, you can skip Israel. If you’re looking for brains, look no further. Israel has shown that it has a disproportionate amount of brains and energy.” Good engineering is key to producing a good product. We’ve all bought poorly engineered consumer products from the Far East that fall apart rather quickly, or just don’t do what they are supposed to. The more sophisticated and advanced a product, the more proper engineering is a requirement, so it’s a good thing for Israeli manufacturers producing these types of products that the country is number one in the world in terms of engineers relative to population. Israel has other notable educational achievements, including ranking among the world’s top four national populations in acquiring top-level tech skills, in the attainment of third-level academic degrees (PhDs), and in the percentage of research personnel relative to population. The result is an educated, young workforce that constitutes one of the best trained pools of high-tech workers on the globe. Werner Vogels, chief technology officer of Amazon, says that his company has been “extremely impressed with the creativity and strong engineering talent available in the country. Locating the development of key parts of Amazon’s business in Israel further accelerates our efforts to deliver innovation to customers around the world.” Those PhDs, along with tens of thousands of other Israelis who are part of the large tech workforce, contribute to an expert brain pool that has developed innovations in a wide variety of areas, including vision technology, robotics, 3D printing and much more. A good example of Israeli tech expertise at work is the Mobileye road safety system. The Israeli start-up achieved its claim to fame earlier this year when Intel snapped it up for $15 billion—the most that company has ever spent on an acquisition anywhere. Using advanced camera, vision and sensor technology, Mobileye has created a system that alerts drivers when they get too close to the car in front of them, or when they inadvertently veer out of their lane. It is now a standard feature in many of the new cars produced by companies such as BMW and General Motors. While Mobileye is a valuable purchase in and of itself, for Intel the sum of its parts may be worth even more, as the company puts Mobileye’s made-in-Israel innovations to work on new products. There are many other factors that manufacturers take into consideration when deciding where to locate their physical plant: quality of employees, pay scales, real estate costs, proximity to markets, and red tape. Most people outside the country don’t know it, but Israel scores very high on any list of countries in these criteria; a mechanical engineer in the U.S., with 10 to 14 years of experience, for example, could expect to earn about $100,000 a year, according to a 2011 survey by the American Society of Mechanical Engineers. An Israeli mechanical engineer with similar experience earns between $60,000 and $70,000 on average. And while real estate costs in the Tel Aviv area tend to be high, there is plenty of room—and there are plenty of government tax breaks—for companies that locate their facilities in peripheral areas of the north or the south. Israel’s well-developed transportation network (highways, ports, and trains) ensures that nearly no company is more than 90 minutes away from an export point such as a seaport. Israel’s 11 free trade agreements, covering 44 countries including the U.S., the EU, the Mercosur Union, the European Free Trade Association, Turkey and more, along with a slew of agreements under the aegis of the World Trade Organization, mean that firms involved in advanced manufacturing in Israel have no problem getting their products to where they need to go. Those who know Israel as a tech research hub should take the next logical step in their thinking—and get to know it as a place to make high-tech and advanced products as well.
Size matters, as we all know—but bigger isn’t always better. When it comes to developing a tech ecosystem, a smaller geographic area, where resources are easier to get to, could provide a major advantage to organizations seeking tech talent. That’s not just a theory. Though small in size, Israel has a rich tech ecosystem, consisting of developers, engineers, entrepreneurs, investors—everything a company needs in order to succeed. For multinationals, the Israeli tech ecosystem has proven to be a major boon: Google, for example, liked Israel so much that it opened two R&D facilities, both of which turn out technologies that have proved extremely important to the company. In fact, according to spokesperson Eric Schmidt, “the decision to invest in Israel was one of the best that Google has ever made.” Google is far from the only multinational corporation to do business—in many cases big business—in Israel. Over 300 multinational corporations, including companies like Google, IBM, Motorola, Qualcomm, Microsoft and Hewlett-Packard have a presence in Israel, many with advanced research and development centers. And some of those presences are major: Intel has some 10,000 employees in Israel, while Flex (formerly Flextronics) has about 3,500. And Apple, with over 1,000, has its second largest R&D facility in Israel. “Apple is in Israel because the engineering talent here is incredible,” says Apple chief executive officer (CEO) Tim Cook. “You guys are incredibly important to everything that we do and to all the products that we build.” So what is the “charm” Israel exerts over MNCs, where the bottom line—not sentiment—is a paramount concern? Here are some of the reasons MNCs choose Israel as a preferred location for some of their most important work: Educational achievement: Israel’s higher education system churns out engineers and tech personnel at an extremely high rate. Relative to population, Israel has the highest concentration of engineers in the world. Israelis also rank in the world’s top four national populations in acquiring top-level tech skills and in receiving third-level academic degrees (PhDs).There are more tech research workers relative to the population than almost anywhere else. With a pool of highly educated top tech personnel to work with, companies can get to work more quickly and efficiently on the technologies, products and services that matter to them. “The quality of education is one of the key factors that makes Israel so unique,” according to Microsoft CEO Bill Gates. “The innovation going on in Israel is critical to the future of the technology business.” Proximity of resources: When developing the Next Big Thing, companies need to avail themselves of the best talent—and the best resources. That could include working on a joint project with a world-class cyber-security expert, or having access to a delicate and expensive piece of research equipment, the kind that perhaps one in a dozen universities has. Fortunately all these resources are available in Israel and are easy to get to. The country is full of experts in information technology, biotech, agtech, and any other technological area one can think of. In addition, Israel has seven major universities, which often conduct joint research programs with companies. And because of the country’s small size, nearly everything a company could need is no more than an hour and a half away by car; no need to get on a plane and fly halfway across the country, or the world, to access those resources. It’s rare to find this kind of tech ecosystem, according to Prof. Amnon Shashua, co-founder and chief technical officer (CTO) of Mobileye and co-founder of OrCam. “There is not a better place than Israel, in any way: the people; the solidarity; the talent; the students; the employees,” says Prof. Shashua. “In Silicon Valley, only at the very top will you find these kinds of people.” Entrepreneurial business environment: Israel is known as the Start-Up Nation, but it’s more than mere marketing; entrepreneurship plays a vital role in all aspects of Israel’s tech ecosystem. If in some countries kids dream of growing up to be a baseball or soccer star, many kids in Israel dream of growing up to be a “tech star,” the CEO of a company that goes public or gets acquired by a multinational. The motivation of those kids persists when they become adults, and many of them try their hand at starting their own high-tech business. Not all succeed—and in fact, a hallmark of success for an Israeli entrepreneur is, ironically, how many times he or she has failed before succeeding (two or three failures is about average). The fact that failure is an option means that Israeli entrepreneurs are far more willing to take risks. With risks come rewards; many of the innovative ideas Israeli tech entrepreneurs have developed over the years are the result of incremental improvements in technologies that have been refined through various iterations and companies. Those technologies are often scooped up by MNCs, which bring them to the world. As Google’s Mr. Schmidt put it, “Israel is thriving because you have a culture that makes it possible to question authority and challenge everything. You don’t follow the rules.” Investment ecosystem: Investors in Israeli high tech are quite experienced in this failure-to-success cycle, and as a result many are willing to take a chance and put some money into a new idea or technology. But unlike what is often seen in Silicon Valley, investors in Israeli tech demand clear business plans and exceptional innovation; the run-of-the-mill phone app isn’t going to get funding. In a sense, Israel is held to a higher standard in tech innovation: investors want to see something special before they put their money down. There are several reasons for why this is the case; among them is the fact that Israel is located far away (from the perspective of most investors familiar with the tech world, who are more comfortable with Silicon Valley), and is located in a “questionable” part of the world. But that insistence on quality has driven Israeli entrepreneurs to strive to be better than average—and companies from around the world are noticing. Werner Voegels, Amazon’s chief technical officer and vice-president, is “extremely impressed with the creativity and strong engineering talent available in the country. Locating the development of key parts of Amazon’s business in Israel further accelerates our efforts to deliver innovation to customers around the world.” For MNCs like Amazon—and for business legends like magnate Warren Buffett—Israel has what companies need to grow themselves. “If you’re going to the Middle East to look for oil, you can skip Israel,” says Mr. Buffett. “If you’re looking for brains, look no further. Israel has shown that it has a disproportionate amount of brains and energy.”
How many calories are in that Danish pastry? Is that branded drug the real thing, or a cheap copy? Is your sweet tooth going to be pleased when you bite into that strawberry—or are you in for a face-crunching, sour experience? Forget decades; if someone had told you just five years ago you could buy a device that could tell you all this and more, you’d have chalked it up to science fiction. But the SCIO molecular scanner and platform is the real thing, proudly developed by an Israeli start-up using top machine vision along with 3D, sensor and networking technology. Those are all specialties of Israel’s advanced tech infrastructure, furnishing the building blocks of the products and services that will change the way we live, for the better. If the handheld SCIO scanner is an example of how that tech can be used on a small scale, the self-driving car is an example of how it can be scaled to create something a lot bigger—and more complicated. For a car to drive itself, it needs sensor technology, advanced 3D-camera tech, location and wireless communication capabilities—and, of course, an ultra-strong security system, to prevent hackers from taking over the vehicle’s operations and wreaking havoc on the roads. Israel just happens to specialize in all those technologies, making the country a center of development for self-driving vehicles. Intel certainly thinks so; the world’s biggest maker of microprocessors made its biggest-ever acquisition in 2017 when it snapped up Israel’s MobilEye for $15 billion. Using advanced camera, vision and sensor technology, MobilEye has created a system that alerts drivers when they get too close to the car in front of them, or when they inadvertently veer out of their lane—and the system is now standard on many of the new cars produced by companies like BMW and General Motors, and many more. With MobilEye, Intel can produce a slew of new products and services that use these technologies—including its own version of a self-driving vehicle. "There is not a better place to work than in Israel,” according to Prof. Amnon Shashua, chief executive officer of MobilEye. “The people; the solidarity; the talent; the students; the employees. In Silicon Valley, only at the very top will you find these kinds of people.” While there are advanced tech labs in many parts of the world, Israel’s small size gives it a major advantage over other places for the kind of technology cross-fertilization that goes into sophisticated devices like the SCIO scanner and the MobilEye safety system—and everything in between. It starts with a sophisticated, educated research and development base, calls on the expertise of a sophisticated, well-educated pool of tech personnel, and concludes with quick and easy access to research centers, entrepreneurs and experts in a large array of fields, both theoretical and practical. Advances in high-tech often begin in the lab—the research and development centers of universities where, via the scientific method, theoretical knowledge gets translated into real-world results. Israel has some of the top-rated institutions in the world for scientific research, with Israeli universities around the world. MobilEye, for example, was developed at Hebrew University, and the Technion, Israel’s top institution for technology research, has for years run joint research programs with companies like Google, IBM, Intel, Motorola, Qualcomm, Microsoft and Hewlett-Packard. “Israel has always had national strengths in education, R&D, government-industry ties and visionary business leaders,” says Stephen Nigro, President of 3D Printing at HP. “That’s what puts it on the leading edge of innovation. We knew that when we first invested in Israel’s digital printing-press technology in 2001.” That research is not limited to a small core group of geniuses: relative to population, Israel has the highest concentration of engineers in the world, and Israelis rank in the world’s top four national populations in acquiring top-level tech skills, receiving third-level academic degrees (PhDs), and in the percentage of research personnel relative to population. Those accomplishments are key factors in creating a workforce that has the expertise to develop the advanced technologies that will go into the advanced products and services companies seek to develop in areas such as aerospace, life sciences, communications, information technology, and the auto industry, among a host of others. But even the best R&D is of no use if you can’t access it—and that’s where Israel’s small size comes in handy. Israel’s small size and well-developed road network ensures that developers who need help—whether that’s in the form of a specialized piece of equipment, consultation with an expert, or lab time at a research facility—will be able to get it that same day. With Israel’s tech centers a maximum 90-minute drive from each other, there’s no need to get on a plane and fly halfway across the country, or the world, to access the resources needed. But even top-shelf R&D and top-level experience in turning the theoretical into the practical isn’t enough. Start-ups, like units within MNCs, need business acumen, marketing knowhow, and some chutzpah to convince customers, investors, or division heads that they really and truly have the Next Big Thing. This is where one of Israel’s greatest advantages—its entrepreneurial spirit—comes into play. Where once it was kids dreamed of forming a garage band, today’s teens and young adults—especially in Israel—dream of a “garage start-up,” where they come up with a technology, app or product that will make them rich. It’s for that reason that Israel has some 5,000 start-ups—about one for every 1,600 heads of the population, making Israel the most “start-up dense” country in the world. Among Israeli entrepreneurs and investors, there’s a belief that if you haven’t failed at one or two start-ups, you can’t call yourself a successful entrepreneur. Unlike in other societies, it’s no shame to fail in Israel; a failed start-up is simply a step on the learning path for how to do it right the next time. That entrepreneurial spirit—along with the Israeli (and Jewish) tendency to question authority, and everything else, is an important part of the value chain that the country offers. Noam Bardin, who as CEO of traffic-management app maker Waze has lived the start-up dream—and succeeded—says that that while his company “may have been the first Israeli ‘unicorn’, in the Israeli ecosystem there are many factors that can cause the rise of many more.” With these tools, companies large and small can take advantage of the many resources Israel offers in order to develop their own unique technologies, whether they are molecular scanners, driverless cars, or anything else. The whole world is talking about self-driving cars—and the technology to power those cars is being developed right here in Israel. For a car to drive itself, it needs sensor technology, advanced 3D-camera tech, location and wireless communication capabilities—and, of course, an ultra-strong security system, to prevent hackers from taking over the vehicle’s operations and wreaking havoc on the roads. As it happens, Israel is a world center of development in precisely the tech that goes into driverless cars. From advanced telecommunications to machine vision to sensor tech, Israeli start-ups, R&D facilities and university labs are at the forefront of these advanced technologies. It’s exactly what made MobilEye attractive enough for Intel to pay about $15 billion to buy out that Israeli driving tech firm—which Intel plans to use to develop technology for driverless cars. This unique Israeli cross-fertilization of technologies to create a whole that is greater than the sum of its parts can be found in many industries, including aerospace, life sciences and IT. We examine how this process works, and how companies can take advantage of the many resources Israel offers in order to develop their own unique technologies, whether it’s driverless cars or anything else.
If you’re a fan of statistics, Israel offers you a lot to love. Israel has the highest concentration of engineers relative to population in the world; Israel has the third strongest scientific infrastructure in the world; it has the third-highest number of people relative to population with three academic degrees; the fourth largest number of research personnel per capita of any country; and the second highest level of research and development investments as a percentage of gross domestic product, nearly twice the Organisation for Economic Co-operation and Development (OECD) average. All those numbers are contributors to another very important number—the average 4% annualized growth rate the Israeli economy has experienced over the past several years. That figure is among the highest of all industrialized countries, and is also nearly twice the current OECD average If there’s a message here, it’s that Israel is “open for business.” In order to achieve high levels of growth today, economies need to be open, encouraging and nurturing investment, providing an ecosystem that promotes innovation, and supplying the professionals and personnel companies need to develop their new ideas, products and services. If Israel is achieving those levels of growth in today’s challenging economy, there’s a good reason for that; it’s because Israel has successfully developed an economy that is getting things right. What are the secrets of Israel’s success? Here are some: The right kind of people: Israel has a young, educated workforce that supplies one of the best-trained pools of high-tech workers on the globe. Relative to population, Israel has the highest concentration of engineers in the world; Israelis rank in the world’s top four national populations in acquiring top-level tech skills, receiving third-level academic degrees (PhDs), and in the percentage of research personnel relative to population. That’s exactly what the companies that are developing tomorrow’s new technologies and products need. With the right kind of motivated, talented people, companies both large and small, Israel can enable companies both large and small to achieve their goals more quickly and efficiently. According to Microsoft founder Bill Gates, “The quality of education is one of the key factors that makes Israel so unique." The right kind of business environment: From venture capital funds to crowdfunding, Israeli funds are among the biggest, best-funded, and most successful investors in tech anywhere in the world. Jerusalem-based JVP, with nearly one billion dollars under management across six funds, is one of the world’s top ten venture capital funds, while Ourcrowd, with some $400 million in funds raised, is the world’s leading equity crowdfunding group. It’s quite an accomplishment for a county with barely 8 million people, and it again shows what kind of business environment Israel has managed to develop. That environment comes as the result of the right legislation and government policies. The government-sponsored Innovation Authority encourages investment in new projects with grants and other assistance. New tax policies, meanwhile, including cutting the taxes on dividends and capital gains for high-tech companies, are designed to encourage more foreign firms to join the 300 plus multi-national companies with presences in Israel. According to Google’s Eric Schmidt, “The decision to invest in Israel was one of the best that Google has ever made.” The right kind of innovation ecosystem: For companies seeking to innovate, Israel offers a great many benefits. While Israel may be small geographically, it’s very diverse in terms of the type of talent and resources that are available—from an army of entrepreneurs dedicated to building the Next Big Thing, to a slew of well-equipped labs that enable advanced research in computers, biotech, agtech, and any other technological area one can think of. Anything a firm could need—from a specialized piece of equipment to a world-class expert—is no more than 90 minutes away by car. There’s no need to get on a plane and fly halfway across the country, or the world, to get what you need. This kind of innovation ecosystem exists in maybe two or three other places on earth, according to Prof. Amnon Shashua, co-founder and chief technical officer (CTO) of Mobileye and co-founder of OrCam. For him, “There is not a better place than Israel, in any way. The people; the solidarity; the talent; the students; the employees; In Silicon Valley, only at the very top will you find these kinds of people.” It’s just another advantage that has contributed to making Israel one of the strongest economies in today’s business environment. IIt’s a global marketplace, and competition between businesses, and between countries, is fierce. Multinational firms especially, but even small businesses and individual entrepreneurs, have a wide-open world to choose from in which to build their dreams. And plenty of governments offer firms that locate in their country, tax breaks and other benefits. Israel does all that as well, of course, but it offers companies large and small a whole other set of benefits—tangible, in the form of infrastructure and ecosystem, but intangible as well. Companies that locate and do business in Israel plug into a tech and innovation environment unmatched anywhere else.
