Post 18: Paving the China-Israel Economic Highway(Observations from “Circle One”)

Dear Friends,

The China Israel business collaboration model is changing these days from Joint ventures in China to overseas strategic investments. This change is unleashing enormous economic potential never seen before. China will
soon establish itself as the most important strategic economic partner to
Israel’s eco-system, second only to the US.

In the past, Chinese counter-partners suggested collaborating in
the frame of “Joint ventures”. Such model calls for setting up a partnership
framework in China, with international financing, focused on the China market. That
was the modus-operandi between US and Chinese companies (i.e. 3Com created a
$300M JV with Huawei).

Nowadays, in the Israeli eco-system, Chinese are implementing an
“overseas investment approach”. For the first time, Israeli funds raise money
from Chinese LPs. We see M&A activities targeting Israeli companies (Adama
was acquired by Chem-China, Alma Lasers acquired by Fuson and there are ongoing
M&A discussions with “Tnuva”, the leading Israeli Dairy Company as well as
with The Phoenix Insurance Company). Chinese strategic corporations are setting
shops in Israel (as recently was announced by Lenovo who is setting up R&D
Center, following other ones).

Baidu, Alibaba Tencent and Xiame (aka BATX) are exploring direct
investments and partnerships in Israel, searching for core technologies in the areas of
Big Data, Cloud Computing and Data Centers Infrastructure, and more. Private
Equity funds are making significant direct and pre-IPO investments (such as the
PE Fund Sailing investment in Mobileye). Giant companies make direct
investments in startups and mature companies (PingAn, for example, invested last
year in 6 Israeli companies, mostly in the “FinTech” domain, among them are eToro, the world leading Social Investors’
Network, and Payoneer).

Israeli companies used to initially launch their businesses in
the US, in order to gain credibility and success. Only then, they will make an
attempt to expand their reach into the more complicated “ROW” (“Rest of the
World”) markets. Visualead is an Israeli QR Code Start up Company (www.visualead.com) focused on the China market. Their management team
relocated to Shanghai. Following the completion of an angel round of financing,
they were backed by the Internet Giant Alibaba. While starting in China is challenging, I believe the number of such “China
Market First” companies may grow in the coming years. These companies will expend
their business into the ROW markets following their initial success in China.

A flow of Chinese delegations consists of Government officials,
business leaders, executives and academicians arrive in Israel every other
week, pursuing a growing number of business and collaboration opportunities in
Israel. A great deal of interest is demonstrated in the areas of food security,
healthcare, IT, energy and education among others.

The Israeli economic and business community should pay attention
to the rising economic interest in Asia Pacific in general, and in China in
particular. The Israeli ecosystem will slowly pivot from “US primarily” orientation, towards the
orient, creating a more diversified and balanced source of opportunities. We
need to learn the culture and values and we need to learn how to listen. We
need to adjust to a new area of global changes.

While there are more English speakers in China and India than in the US,
and communication is improving, teaching the Chinese language at Israeli schools
in addition to English could be proven to be beneficiary, as English and
Chinese will open most of the global doors for the future.

As the China Israel economic model evolves, the bridges between
our two countries, cultivated by pioneering business leaders from both ends, with the support of “China pioneers” may become the foundation for a highway, leading us from today’s world into a
new age.

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