Israel Is Innovating Its Way To Success

By Lacie Levy

From January/February 2019 Issue

The short road trip between Israel’s two major port cities, Tel Aviv and Haifa, offers passengers a chance to gaze out at the clear Mediterranean Sea. But the scenic view is not the only aspect that makes this trip interesting. This route in particular could double as a tour of Israel’s economy. All along the major roads, and especially concentrated as you near each city, are large buildings with modern architecture and prominent logos: Microsoft, Google, Apple, Dell, IBM, Intel, GM, Citi, Cisco, Bosch, Oracle and many more. Israel is as abundant in opportunity as it is rich in scenic views.

The book Startup Nation by Dan Senor and Saul Singer brought a lot of attention to Israel’s economic miracle. Pressing circumstances and an entrepreneurial spirit has produced a country that had to innovate its way to success. Yet, startups are truly just one chapter of this country’s story. Many of the reasons Israel is so conducive to startup success are the same reasons more than 300 well-established MNCs (multi-national corporations) have chosen to invest.

Israel’s workforce is highly educated and diverse. From regional primary schools to multidisciplinary research institutions, education and research is discernibly prioritized. Of the working aged population, 49 percent have post-secondary degrees. The population has the highest concentration of engineers in the world; publishes twice as many scientific and technical journal articles than the U.S.; and has 12 Nobel laureates—half of which went to individuals born outside of Israel, illustrating the nation’s diversity. Israel is a global leader in science and technology, ranked highly for its research institutions, scientific infrastructure and university/industry research collaboration.

The workforce is naturally internationally oriented due to its high population of multilingual immigrants. In 2018, the country welcomed 40,000 new immigrants. Most of these immigrants came from Russia, Ukraine, the United States and France. More than half the population’s native language is not the official language, Hebrew; so, in any given workplace, you are likely to hear English, Arabic, Russian or French. In addition, Israel has a healthy age distribution, with a young and growing population promising the next generation of highly-skilled workers.

Located between the East and West, Israel is centered between the world’s major economic hubs, equidistant to New York and Tokyo. Well-functioning business infrastructure is ensured with accessible roads and simple cross-border trade. Within the country, the major cities, sea ports, airports, research institutions, universities and industrial zones are all within a 90-minute drive of each other, making it easy to access all the country has to offer. Brian Krzanich, former CEO of Intel said, “It’s about the only place where you have a complete cross-section of the company in one country.”

These attributes have supported economic growth and stability. The three big credit rating agencies, S&P, Moody’s and Fitch, have denoted A+ and A1 ratings, with stable and positive outlooks. The unemployment rate is low and lowering.

One explanation for Israel’s economic resiliency is that the country is always looking towards tomorrow. Israel’s R&D investment as a percentage of GDP is the highest in the world. Where the U.S. invests 2.78 percent, Israel invests 4.25 percent. Already earning 20 percent of its private sector GDP from information and community technology, Israel is a global leader in emerging growth sectors such as big data, IoT and cybersecurity.

Israeli leadership is pushing forward, with no intention of resting on its laurels. Nowhere is this more evident than in the establishment of Invest in Israel by the Ministry of Economy and Industry. Invest in Israel operates between the private and public sectors tasked with building a fast lane for the needs of private sector clients and promoting activity within the government, making sure foreign companies succeed here in both the short and long term. If an organization wants to open an R&D center here, as just one example, they have advocates from the inside on their side. They get help navigating the government framework and assistance to make sure they are able to take advantage of everything Israel has to offer. Invest in Israel also has created incentive programs with attractive financial options that fit dynamic and changing ecosystems; key industries showing high-performance, high-growth rates and significant manufacturing potential are targeted for special consideration to receive these benefits.

One such industry is medical and cosmetic lasers. In 1990, Israel already had 200 operating life science companies, three of which became leaders in medical and cosmetic lasers: Lumenis, Syneron and Alma Lasers. Today, there are five times the number of life science and specifically laser companies. Laser market revenue has grown every year since 2013. The medical laser market itself is now worth $838 million and is expected to reach $73.6 billion in 2022.

In addition, the advanced manufacturing in the plastic industry consists of 500 factories, earns $4.8 billion in annual revenue, has an average annual growth rate of 8.7 percent and is responsible for six percent of exports with trading partners in every region of the world. There are about 20 Israeli companies leading the field of composite materials for aviation, most of which control the entire production process from planning to manufacturing. The Israeli Plastics and Rubber Center is developing plastic and rubber polymers for several industries, including aviation.

Another transportation growth sector is electric vehicles. Electric vehicle and battery companies currently constitute 15 percent of the companies operating in Israel’s smart car industry. More than 60 Israeli companies are manufacturing the aftermarket products for the automotive industry.

Israel aims to expand its position as the global leader in metrology and testing in the semiconductor industry. As demand for IoT increases, so does the demand for manufacturers to verify the integrity of chips and improved efficiency. Today, the Israeli metrology market is approximately $1.37 billion. With current growth and more devices joining the Internet of Things, in this sector Israel is expected to hold 36 percent of the global market, worth $51 billion in 2020.

Combining Israel’s high capabilities in chemistry and mechanics with the ability to integrate those aspects in nearby manufacturing, Israel’s digital and 3D printing market is expected to reach $28.9 billion by 2023. Israeli companies have been pioneering the digital and 3D printing industry since the 1970s and are now leaders in digital printing research, development and manufacturing. Worldwide, Israel manufactures about 40 percent of 3D printers.

The robotics market in Israel is modest, but it has earned a reputation for changing lives by revolutionizing spinal surgery, securing homes, rescuing trapped humans and assisting senior citizens. The market for robotics is steadily growing from $30 billion in 2017 to an expected $80 billion in 2020. In Israel, Mazor, a medical robotics manufacturer, has grown 100 percent annually, and Friendly Robotics, which manufactures robots for domestic use, doubled itself between 2012 and 2015.

Israel’s military capabilities are renown, particularly for unmanned aerial vehicles, which the country began developing in 1962. Today it is the world’s largest exporter of UAVs (unmanned aerial vehicles), which alone accounts for 10 percent of Israel’s defense exports and is a strong magnet for FDI. Military UAVs are expected to be a $11.6 billion global market in 2020, followed by commercial UAVs ($6.4 billion) and hobby UAVs ($4.4 billion).

Images of Israel’s cities reveal a country of modern skyscrapers next to antiquated buildings and constant development. It’s symbolic of the nation’s constant growth. Already, the MNCs here have made a mark, but the rate of investment and construction are sure to bring even more to the economy and scenery alike.