Aptitude and attitude: the Israeli formula for creative business

What explains both the success and resilience of the national economy and what are the main challenges you have to overcome in order to maximize your positioning in the international arena?

What makes us so competitive I think is a question to which you are probably going to hear very diverse answers from many people you may ask, but I would say that what makes us a little bit different than other countries is the fact that for the past 20 almost 25 years we went through a massive change that I think comes from a few good reasons.

First of all we had to comply with a very deep recession here in Israel during the mid 80s, you probably know about that. The second reason comes from the fact that during the 90s, Israel had to confront a massive wave of immigration that came from the former Soviet Union countries – we are talking about a country of 6 million inhabitants that in less than a decade had to absorb more than 1.2 million immigrants. You can imagine that this is a massive challenge for a country and we were fortunate to have people who were well educated, eager to succeed and to utilize the options that came from a competitive economy, coming from a less competitive environment. They were eager to succeed, hard-working people, quickly adjusting and willing to work in anything that people would allow them. And in the second generation, we have a generation that once again puts scholars in very high importance because of their behavior, adjusting to this environment very quickly, putting that with the environment of our different challenges, that brings in big innovation; maybe we can elaborate on that a little bit later.

Altogether, with a good academy and with something that is very deep in our culture – to always ask questions – all that together creates an environment that brings people to create, to bring new ideas, to bring different perspectives, and I would say to be in the right place at the right time. Israel had the opportunity to use the global changes in a better way than some other countries, not all, but some other countries.

Now what are the challenges of Israel today in this respect? Once again, there is a very long list. I would say we are very much concerned by the fact that we can’t see enough big companies that are actually maturing in Israel. We see many beautiful initiatives, we see a lot of foreign investments that are coming to Israel, but we don’t see enough big companies, big employers that are actually developing. We do see a trend that very much concerns us, that wonderful ideas are actually being exported; that people bring an idea, bringing in sometimes even a mature product, but then it disappears mostly to other countries.

What is your insight on the statement made by the CEO of Teva Pharmaceuticals that Israel doesn’t need more start ups, it needs more big companies?

I heard him speaking on that a couple of weeks ago, and first of all I totally agree and I would never dispute him; I think we do need more startups. I think that you are aware of the figures from the beginning of this year; the figures of new company launches are simply outstanding. We’re talking just in five months or six months, $5.5 billion just by new companies. It’s a lot and it means that some of these companies will stay, and some of these companies will be killed by the party that bought them, because they are competitors. They are very good with technology and well incorporated. And some will simply take technology abroad. Altogether we are talking about 1 in 5 that actually survive the first three or four years after the launch.

But, it’s not just that, because the money sometimes comes back for the next project, and we see that a lot. We see these entrepreneurs that are actually serial entrepreneurs. They have the first launch; now they have enough money to go for the second, and for the third, and sometimes for the fourth challenge of entrepreneurship in this respect, so it’s not just that.

What we can see here for example, which I would say is also a reflection of the situation, is the number of R&D centers that we have in Israel. On the one hand it’s wonderful, it’s great that we have big multinationals that come to Israel for the sake of research and development. They are injecting money, they are injecting work, they are doing very well. But when we’re taking let’s say the macroeconomic influence of R&D centers and you compare it to a company like Checkpoint, the overflow to the Israeli system is quite limited. In a way, they are using the brain, they are using the R&D capacities, but they are not using the ability actually to produce, and I would say that from a sustainability point of view of the Israeli economy, we need to find a more balanced situation in this respect.

You asked me about the challenge. I would say that this is the challenge. I can also touch on the fact that the Israeli economy is not just high-tech – it’s also mid-tech and it’s also low-tech, and we have plenty to show in this respect. Take a look for example at a company like Iscar. It’s a company that processes metal for the aviation and space industries to very high specifications, and is owned by Warren Buffett. This is an industry that exists in Israel and has the capacity to grow, but we don’t see that enough because we are lacking the people to work there. We simply don’t have enough labor that first of all has the willingness, and secondly, the capacity to work.

When we’re joking about Jewish mothers, I would say about 60 years ago every mother would have liked their sons to be lawyers, doctors. Nowadays they want them to have success, and we don’t see enough Jewish mothers who are pushing their sons, and we need to find a balance in this respect as well.

We will not succeed in creating all these balances in the Israeli economy if we don’t invest also in the mid-tech and in proper education that will create the next generation for people to work there. Sometimes we look in great envy at the education system of Germany, where you see from the very early stages, from the age of 12, 13, 14, they already push youngsters to work in the big industries, and this is how you create big industries. This is why they are doing so well in this respect.

Where is Israel heading to in the next few years in terms of diversifying its export base?

I would say the diversification will come from two areas, one being from what we export. And the second is the geographical destination to where we export. I will start with the second issue because it’s very easy to explain. When you take a look at the overall exports of Israel, we’re still very much concentrated on the traditional markets. I think you mentioned how deep our relationship with the US is. It is for many good reasons: neutral partnership in culture, students are coming and going, big communities that are supporting Israel, movement of people, political engagement, you name it. When we take the overall goods and services, still more than 50% of our exports go to Europe and the US. When we put the services into the equation, it’s almost 70%, so when these two markets have the flu, Israeli exports can become very sick, and in this respect we need to think of tomorrow. We need to also look at the mega trends of the macroeconomics of the world, and we can’t leave behind the emerging markets of China, India, and Africa. Also Vietnam. There is a very comprehensive list in this respect. So, it’s about the diversification of our destinations.

Regarding what we export, you touched upon issues of HLS (homeland security) and water. In these two areas, Israel has plenty to offer both for the well-developed and the non-hungry part of the world. But we also have some very interesting solutions that will be very interesting for the bottom of the pyramid, for example, communities in Africa or in parts of Asia.

We’re talking about solutions that come from the areas of supplying water for agriculture in order to feed these communities, and we’re talking about supplying clean and safe water in fast growing urban communities of the world. Sometimes the challenge is to supply fresh water at a reasonable price, and of course I can’t leave behind the big challenge of feeding the world in 2050. This is something we are very proud of, playing a significant role in part of the solution we can offer to the world in this respect.

The HLS derives of course from different areas. We’re talking about an industry that started from the defense industry. We still have a very big and innovative defense industry, but here we are not touching that at all. We are only talking about civil technologies. And out of these technologies we see a wonderful solution that comes from the trend of a decade ago of the safe cities, big cities in Mexico for example and in South America, and in other places, which invested heavily in creating a safe environment for their communities. Since then, I think that we went through an evolution that the safe city became a smart city, and we’re talking now about technologies that are related to the entire experience of how to live in a city, where the services that the municipality can provide for the people who live in the city are simply better.

We’re talking about the relationship between the municipalities and the citizens, we’re talking about how to pay taxes, how to control the transportation, simple manners of how to rent your city bikes, and of course how to monitor your public transportation, how to control your water system, how to tackle an issue of a failure in the system – all this actually comes from the past from the safe city to the smart city. The mobile environment creates great opportunities for Israeli companies in this respect because nowadays everything is interconnected. I think that we can offer you a very long list of very interesting companies that are using the mobile platform to provide very simple solutions that will make your life a little bit different.

30 years ago, the US and Israel signed a free-trade agreement, the first such treaty for both nations. Ever since, bilateral trade has increased significantly, from $4.7 billion in 1985 to last year’s more than $38 billion. What is the importance of maintaining a healthy commercial relationship between the two countries?

I would say that in comparison to other countries in the world, the challenge of our duty towards the US in most cases is a little bit easier. I mentioned that before. The synergy and the cooperation between America and Israel is already so deep that things are going on even if the political ecosystem fluctuates a little bit. I think that business and people engagement in most cases is running much faster than the political agenda, and I expect that the two countries will understand we need to leave the business for the business people. It works very well on a scale that we don’t see with any other countries. They are coming and going, business is for people and it’s made by people, and it seems there are so many interactions that are going on, I don’t expect that this will change. Now what we are doing in this respect, we are trying to bring in to very close acquaintance the needs and the solutions from both sides, and we’re doing that on a regular basis, and we’re trying to create meetings and business opportunities for the Israeli companies and we have many American companies that come to us and ask for our assistance.

They already know that we have a very good outreach for the Israeli companies. Relatively it’s not as complicated as, for example, India. So this is the first issue. I would say that for example in the area of cyber, which is one of the most vivid sectors in Israel, we do try to invest in a few other platforms that in the past we were not taking part in, so we participated this year and we will do the same next year in the big LSA event. We had about 35 young companies that took part in that last year and I expect next year will be even bigger. Dozens of business meetings took place during this event. We are cooperating with different commercial entities that are situated in North America, some of them are deep in the Silicon Valley, and they are trying to form a the connection with these companies and to expose them to the Israeli capacity in this respect.

How important do you see the need for Israel to position itself in the international arena?

I think that we need to break it into two areas. In the technological arena I don’t see any issue that is actually going on. When business is speaking, when cutting-edge technology is speaking, I wouldn’t say that I can identify a single issue that will actually block the Israeli entrepreneurs or Israeli companies to work around the globe.

When it comes to the area where, of course you’re trying to push me towards the BDS (boycott, divestment and sanctions) area in a way, when we are talking about products that you need to brand, you need to demonstrate that they are made in Israel, then that Israeli relative advantage is not so deep. So we do see sometimes an environment that is not in favor of Israeli products. We can’t actually put our fingers on data that will support that. So, it’s more of a discussion that is going on, it’s about the media, it’s about the social media, but I can’t really highlight now figures that will indicate that something is actually happening. What I cannot do is to tell you about the unsigned contracts that for some reason simply disappeared. This is something that we will probably never know.

What would be the final message you would like to convey to the international investment community?

First of all I would say that I’m very optimistic about Israel and in the long run I’m very optimistic about the area as well. It will take some time but we need to think about a longer vision in this respect. I think the economy of Israel is stable, it will continue to develop. I think we are good even with a past let’s say two or three years that were not as good as the previous ones mainly because we were so affected by the situation in Europe and the US, but we expect that growth will accelerate soon. And even in the wider area I’m optimistic.

On top of that I would say that Israel is a wonderful place for international communities to come and invest and to come and work with. And it’s a place where for almost everybody you can find something that will increase your value in a way. All you need to do is to come and see and meet the people.

I think when we are succeeding in bringing people here, people who are coming to Israel are falling in love with Israel. It’s not just the environment, it’s the people, and it’s the eagerness of the people to cooperate and to do business. We are a very open economy, we are very open for cooperation, and generally speaking it’s a good place for business people, just as Warren Buffett mentioned. I think he was one of the first big players who saw that many years ago.