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| Pushing the boundaries of communicationsm |
Can Israel grow beyond a "Silicon Valley" economy?
Roi Feder, associate director, APCO Worldwide
A powerhouse for revolutionary technology, Israel has successfully positioned itself as a hub for some of the leading high-tech and biotech firms in the world. During the past decade, billions of dollars have poured into Israel's economy as international companies invested in small- and medium-size Israeli start-up firms that produce cutting-edge technologies. However, Israel is now reaching a tipping point in its economy; many companies are not only selling, but are also buying, and their success depends on their ability to learn how to navigate the global marketplace.
Israel's technology-based economy is recognized internationally for many reasons: hosting the largest research and development (R&D) facilities outside of the United States for IBM, Microsoft, Intel and Motorola; having the highest number of companies listed on the NASDAQ after the United States and Canada; leading the world in registered patents per capita; and being the pioneer in the development of some of the leading communication-age technologies, including VOIP, IM, USB flash and more.
Israeli innovation is recognized in other fields as well. For example, pharmaceutical companies are finding Israel as a natural location for setting up R&D facilities. In a recent article in Tradeway Magazine, Michael Berelowitz, senior vice president and head of worldwide medical research at Pfizer, said, "we found Israel to be the ideal place to conduct clinical trials of the highest standard."
According to an article in The Marker, following his US$4 billion investment in 80 percent of Iscar, a producer of unique and innovative cutting tools for metalworking, Warren Buffet said, "It's impressive when a country of 7 million people has a corporation like this, I haven’t seen anything like it in the United States… Israel should not be a secret to investors…."
Naturally, one of the reasons for Israel's success in developing so many cutting-edge technologies has been its need to keep the upper hand in a very fragile geopolitical environment. Indeed, knowledge initially created to strengthen its security has trickled into civilian use and has helped Israel to become one of the main forces in the global technological revolution.
But the story of Israel's economy is changing. In the coming years, Israeli companies will increasingly attempt to move from being acquisition targets to becoming global investors. The tipping point for this shift came in July 2005 when Teva Pharmaceuticals announced its acquisition of the IVAX Corporation for US$7.5 billion, making Teva the largest generic pharmaceutical company in the world and Israel's leading multinational. This purchase set an example and may have lifted a psychological barrier for many Israeli corporations and investors who have become more focused on expanding their operations outside of Israel in search of future growth engines.
From real estate to retail, from coffee to renewable energy, Israeli companies are expanding their global reach in a multitude of industries. For example, Fox Fashion expects to have more than 100 stores in China in the next five years; Solel Solar Systems is planning to build the world's largest solar energy plant in California's Mojave Desert; The Elad Group purchased the famous New York Plaza Hotel to add to its growing portfolio of several billion dollars worth of international real estate; SuperPharm is becoming the leading drug store chain in Poland; Strauss-Group is the number one distributor of coffee in Eastern Europe; and IDB Holdings has heavily invested in GVT, one of Brazil’s leading providers of telecommunications services.
This trend of expansion, however, comes with a steep learning curve. In an interview with the Israeli edition of Forbes magazine, Patrick Horgan, APCO Worldwide's managing director of EMEA-Asia business, identified several challenges common to Israeli companies that are looking to expand their activity internationally. "Used to working in a fast-paced environment, Israeli companies tend to cut corners and instead of dealing with bureaucracy they circumvent it," said Horgan. "The important thing in these markets is to build relationships in various circles." Horgan adds that in Western markets 'going by the book' is paramount, and Israeli firms need to reach out for assistance if they are to understand the complex and diverse global business environment.
Israeli companies are quickly learning that navigating the global marketplace requires not only fast assimilation of best practices, but also an understanding of "hot button" issue trends and mitigation within a regulated business environment. A road map is being drawn, and it is only a matter of time before Israeli firms learn it, master it and secure their future growth engines.
Roi Feder is an associate director in APCO Worldwide’s Tel Aviv office. He provides support to clients in a variety of areas, including strategic philanthropy, market penetration, government relations and Israel-related policy issues.