The technology sector is a powerful growth engine in the Israeli economy, representing 10% of the country’s labor force, more than 15% of its GDP growth, and over 40% of its industrial exports. Additionally, investment in innovation represents 4.5% of Israel’s GDP. But most importantly, the technology sector creates new jobs, and with it, new opportunities for the younger generation in both Israel and the US. By and large, the Israeli model demonstrates that innovation is an important job creator in the Middle East region and beyond.
There are two major global forces that drive the innovation business in Israel.
The first consists of global companies’ R&D activities in Israel. Many of the major strategic companies around the world (most of them being U.S.-based) have already established significant Israeli R&D operations, where Israeli engineers focus on developing cutting-edge technologies. Currently, there are more than 250 R&D centers in Israel, including those of Apple, Broadcom, Cisco, Google, Intel, and Microsoft, to name a few. Apple, for the first time ever, has taken a step outside of its Silicon Valley campus and built an R&D Center in Israel last year. Since then, the company has already built a second R&D center with plans for a third one in the coming year. We also see initial Chinese interest in building such R&D centers in Israel. These companies employ tens of thousands of Israeli engineers, and thanks to them, Israel stands at the forefront of global innovation.
The other global force that drives the innovation business in Israel involves global financial institutions. These financial players invest in VC and PE funds that are interested in investing in the Israeli start-up phenomenon – one that has awarded Israel the title of the “Start-up Nation”. Approximately 5,000 Israeli and Israeli-related start-up companies are currently active across a wide range of different technology sectors, including cyber security, mobile, advertising tech, big data, algorithmic software, life sciences and many more. While some start-ups are still in the early stages, and others are growing and expanding internationally, nearly all of them benefit from or contribute to Israel’s strong entrepreneurial support ecosystem, which is complemented by its dynamic venture capital community and early-stage investors. Israel has more than 24 start-up accelerators in the Tel Aviv Area alone, including some that are run by U.S. companies like Microsoft and Google. In the process, these start-ups not only churn out cutting-edge new technologies, but they also create plenty of U.S. jobs as a result.
As Israeli companies prepare to scale, it becomes extremely difficult for them to continue to manage operations, while actively acquiring new U.S. customers from Israel. Therefore, at this point, Israeli companies usually choose to keep their R&D in Israel while building teams focusing on marketing, sales, and support operations for the purposes of scaling the business in the U.S. Because more companies out of Israel are targeting businesses that ultimately get them closer to the end-user as opposed to solely providing them with enabling technologies, now more than ever before, start-ups are flocking to the Greater New York City Area (alongside Silicon Valley and the Boston Area), as there they have direct access to the growing media markets.
Some of the best examples of this include up-and-coming Israeli companies like ContextIn, Innovid, Kaltura, mySupermarket, Taboola, and Varonis, to name a few.
Last month at a conference organized by the Israeli Consulate in NYC, it was estimated that there were nearly 2,000 start-up companies in the New York Metro Area, wherein some 200 of them (10%) had R&D centers in Israel (such companies were not included in the previously mentioned figure of 250 R&D centers). Ron Yekutiel, CEO of Kaltura, cites the following anecdotal evidence to support this data, stating“…around 140 Israeli companies are registered in this recently launched site http://www.israelimappedinny.com/, out of 1,300 companies that are registered in this map http://mappedinny.com/. While the numbers are lower than above, the stated 10% ratio still holds.” In some companies, the US operations are even leveraged to expand global operations. Regardless, as these companies grow, they continue to create more and more jobs in the US and beyond, creating an “innovation-based global job creation” ripple effect.
All in all, Israeli innovation benefits from both worlds. On one hand, the global R&D centers in Israel are looking to make acquisitions that increase their presence in Israel and, from time to time, offer entrepreneurs an exit route via M&A. Some of these R&D centers have acquired more than 10 companies alone over the years. In other cases, the R&D centers make strategic investments together with the local VC community and help companies grow faster and safer, thus creating more jobs in both Israel and the U.S. When start-up companies reach a certain “glass ceiling” with respect to growth, global companies can help carry the vision forward, and introduce the products and services beyond the start-ups’ reach.
In parallel, the global financial institutions finance the local VC Community, which consists of very active Israeli and international VCs, and offers entrepreneurs a runway to “build companies to last” – from “seed” to “succeed”. Recently, the local entrepreneurial culture and its approach towards building companies is shifting towards adopting a long-term view and a “build to last” approach rather than the “exit and build your next venture” approach that was typical in previous years. This new methodology ensures that Israeli start-ups stay in the game for the long haul and become category leaders.
As this shift continues, Israeli companies will continue to create more and more job opportunities in Israel, the U.S., and likely even beyond. The presence of major global R&D centers, as well as thousands of start-ups will allow the country to remain an important hub for global innovation, as well as a creator of top-notch jobs for decades to come. Whether Israeli entrepreneurs build companies to last, or sell their innovative businesses and partner with strategic players, Israeli technology will continue to provide the Israeli and U.S. job markets with significant and high quality growth opportunities in the coming years.
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