Over 90% of the funds that help create innovation in Israel come from the U.S.
However, in the next decade, we will see strengthening ties between Israel and China, where China will become a dominant strategic partner of the high tech industry in Israel.
We have always felt there to be great potential for China-Israel collaboration in the high technology business. China’s economy is the second largest economy in the world, and continues to grow. Because technology implementation is an important factor for maintaining this position and trend, and as Israel has innovative technology solutions to offer, we are beginning to see a growing Chinese interest in Israel, alongside a growing Israeli business interest in China. I believe that in the next decade, China will establish strong ties with Israel. This is because, while the US and Europe are still the major players in the Israeli high tech scene, Chinese investors and strategic corporations are beginning to show a growing interest in entering the Israeli innovation market, and are looking for ways to both form strong relationships and build a presence in Israel.
Over the last several years, we have seen more Israeli companies beginning to generate revenues in Asia-Pacific, specifically in China. China represents a huge market with great demand in a number of sectors such as energy, water, communications, agro-industrial, healthcare and others. In many cases, Chinese entrepreneurs not only try to close gaps, but rather try to leapfrog old technologies on the way towards new, cutting-edge solutions. For Israeli companies, these are perfect conditions for collaboration.
Unfortunately, although the prospect is exciting, the China-Israel economic collaboration is far from where it should be. If we want to build it to the next level, we should compare it to the successful US-Israel model. Bi-national strategic relationships, such as that which the US and Israel have, are rather broadly based on all elements of the technological “economic food chain” – academia, education, entrepreneurship , venture capital investments, M&A and public offerings in capital markets, and so on. Most of the funding that flows into the 5,000+ startup companies in Israel is colored “Green”.
But in order to be able to use the US-Israel model to help us with China, we need to understand how it works. Basically, US investors finance the VC community, which, in turn, invests in startup companies (both Israeli “originated” and international funds raise money, however, mainly from the US). Israeli companies prefer to either go public in the US Capital Markets or go the M&A route, and most of the M&A activity is financed in US dollars. Just look at the recent acquisitions of Waze, Trusteer and AdapTV, or at the nearly 250 global R&D centers in Israel that were established or owned by US companies like Apple, Cisco, eBay, EMC, Facebook, Google, IBM, Intel, and Microsoft to name a few. Not to mention that hundreds of Israeli companies are headquartered in Silicon Valley, New York, and Boston, and many Israeli entrepreneurs and executives are educated in the US. In fact, out of 2,000 startup companies in New York, 200 of them have an Israeli nexus. This partnership has essentially been nurtured over decades – we share common values, and have a similar entrepreneurial culture and spirit. The US is still Israel’s most important strategic partner, and I assume it will stay like this for a long period of time, if not forever.
At the same time, the Chinese are becoming more aware of additional models of cooperation. The traditional Chinese “Joint Venture” approach is diverging into new and alternative approaches, and more people are following in the footsteps of US players. For example, quietly and under the radar, Chinese companies recently established several R&D centers in Israel. Other private Chinese groups are investing in Israeli venture capital funds, with no Israeli cross-border investment contingencies. A few Chinese acquisitions of Israeli companies have been completed (the most recent one being “Alma Lasers”, which was acquired by Fosun Group), and more and more academic collaborations and students exchanges are springing up left and right. Recently, Mr. Li Ka-shing made a $130M donation to the Technion Institute of Technology as part of a project to build a joint China/Israel Campus in China, just like that which the Technion and Cornell University are contemplating doing in NYC.
But it doesn’t stop there. Chinese PE and VC funds too are exploring overseas investment programs, and Israel is a “natural” destination for such an effort, as many Chinese delegations and missions have already visited or are visiting the “Startup Nation”. Government to Government visits, or “G2G” visits, are starting to take place, which are highly important, especially at such an early stage in the relationship. The Chinese are learning about G2G projects by looking at the great work that has been conducted by the US-Israel G2G BIRD Foundation over the last few decades in financing and endorsing US/Israeli companies’ in their efforts to develop strategic collaborations with one another.
In addition to following in the footsteps of the US-Israel model, Chinese investors are also developing their own agenda with regards to the broader Middle Eastern and North African (MENA) regions. China will enter the Middle Eastern Internet market as well, and will try to capitalize on the growing Arab Internet opportunity. While US Internet companies are expanding their operations into Europe, South America and other potential markets around the world, Chinese Internet companies are targeting markets for growth. MENA is a region of interest to China as it has a youth bulge that is starting to build an Arab-speaking Internet market, as well as an African Internet play. For example, one of the largest Internet players in China, with whom Pitango has already met, has an active R&D Center in Egypt.
We are just at the beginning of the Chinese era in Israel. China’s focus on Israel will continue to grow, and so will its interest in MENA. These two trends offer opportunities for cutting-edge Israeli technology companies (“Circle One”) as well as the region as a whole (“Circle Three”).
This blog post will also be published by Calcalist in Hebrew www.calcalist.co.il.
For this post in Hebrew, please visit: http://www.calcalist.co.il/local/articles/0,7340,L-3613431,00.html
As always, your comments are welcomed.