The Other Silicon Valley: The Role Of Multinational Companies In Israel’s Startup Ecosystem
Israel’s high-tech scene is famous for its small startup companies that strike it big with sweeping acquisitions, like Waze, acquired by Google in 2013 for $1.3 billion, and more recently, for major international IPOs, like Mobileye, which last month raised $890 million at a valuation of $5.31 billion. But what about the 264, big-name multinational companies (MNCs) that have made their way to Israel to establish research and development centers? How do companies like IBM, General Motors, Qualcomm, Deutsch Telekom and Google fare in the Israeli economy and what is the degree of their contribution to the success of the Innovation Nation?
At this week’s DLD Tel Aviv Conference, the managers of the five MNCs listed above expressed their opinions on the current state and future of MNCs in Israel, or “Silicon Valley: Part II,” as many at the conference like to put it. In fact, Israel was the first place outside of the United States where Fortune 500 companies like IBM and Apple established R&D centers, with MNCs contributing over $30 billion to the Israeli economy in the past decade. Almost unanimously, the members of the panel agreed that the faith of these complex and disruption-driven companies in Israel is due mainly to the undeniable engineering talent here. As CEO of Google Israel Meir Brand put it, “Israel really has superb engineering talent, which is due in part to strong academic institutions and the entrepreneurial and creative spirit that flows here.”
The panelists agreed on other reasons for the MNCs large presence here. One was the business friendly ecosystem, that promotes the venture capital, angel and startup community and is only second to Silicon Valley. Another reason was, as Arik Mimran, CEO of Qualcomm Israel, phrased it, the “can-do attitude,” a sense among MNC international VPs that Israelis are straight-forward, hard workers who are actually very driven and productive. Noting other reasons like the geographic proximity of Israel to Europe and other innovation hubs, many of the panelists agreed that the Israeli government is friendly (in terms of tax breaks) to MNCs eager to take advantage of Israeli technological talents, a facet maybe best manifested in the recent reform to establish a national authority on entrepreneurship and innovation.
How do local startups fare in the shadow of large multinationals?
When asked whether MNCs are actually contributing to the ‘brain drain’ of Israeli engineers and technological minds away from their home economy, the panel fought to strongly disprove this assertion. According to Guy Horowitz, VP of Business Development at Deutsche Telekom AG, “MNCs have an undeniably important role in the economic stance of Israel. This is because we are working towards developing the pool of knowledge, and at the expensive of rich foreigners, not small local companies.” Others like Brand asserted his opinion that the presence of MNCs in Israel actually pushes local companies to ‘keep up’ with the competition, making them more productive. General Motors Israel Director Gil Golan believes that MNCs are the best place to give Israeli engineers fresh out of school the opportunity to hone their skills and knowledge, providing them insight on the workings of international business – insight that may be used in the creation of their own startup.
Beyond their praise of the Israeli business drive, the panelists were critical of the country’s educational system. According to Brand, “Israel is enjoying the fruits of the education system that existed 30 years ago. We need to be working towards changing the supply-side problem of educating the engineers and tech brains of the future by providing higher education in mathematics at an earlier age.” Many in the panel agreed with Brand, and he even received applause for these cautionary remarks from the audience. Mimran suggested that members of the tech community should consider being teachers and that there should be more involvement of MNCs directly with school-aged children.
Despite the rich nature of the conversation that delved into most aspects of the MNC presence in Israel, one question remained unanswered: when will Israel build her own MNCs? Rick Kaplan, Country Director for IBM Israel, suggested to NoCamels that potential Israeli MNCs already exist. Take Mobileye, the Israeli company that has disrupted the automotive industry and recently filed for a billion-dollar IPO on the New York Stock Exchange, which Kaplan believes is well on its way to becoming an Israeli multinational. Or Amdocs, maybe the best example of an existing Israeli MNC, a software services company based in Israel that prides itself on employing local engineers all over the world. Yet it seems that despite international success, exits, and IPOs, Israeli companies with the potential of becoming MNCs still in large part prefer to ditch their roots for the glitz and glamour of the US and Europe. Whether a strong Israeli MNC is still a far-off fantasy or an imminent reality has yet to be determined, but in the meantime, no one is complaining about the economic contribution of powerful MNCs in Israel.