There is no doubt that Israel has a thriving high-tech industry. Israel has developed a high-tech eco-system that encompasses companies at various stages of development. It has also built up an extensive community of investors and development centers of international companies. The high-tech industry in the start-up nation has attracted and is attracting corporate giants from around the world to operate their development centers in Israel. This is done via the acquisition of Israeli companies or as part of a business strategy of creating a presence in Israel.
Over the last decade, the presence of foreign companies has greatly increased. According to a research study conducted by Applied Economics for the National R&D Council of the Ministry of Science (in November 2014), 262 foreign R&D centers are currently operating in Israel. The foreign high-tech companies operating local R&D centers include, inter alia, Apple, Google, IBM, Intel, Microsoft and eBay. They are responsible for 39% of the employment and 49% of the output in the Israeli high-tech industry.
The foreign development centers play a key role in the eco-system of the Israeli high-tech industry. The development centers provide unique training and cultivate Israel’s best and brightest high-tech people. In essence, these centers serve as incubators for entrepreneurs. Many of these employees leave the multinational companies once they acquire enough experience, ready to found their own start-ups. By this time they are armed with the considerable skillset, knowledge and experience acquired during their employ at these R&D centers.
The development centers are not approved of by everyone in Israel. Some argue that they operate in Israel and employ local engineers, but the growth and the know-how does not remain in Israel. These critics bemoan the fact that the foreign companies are exporting the know-how created in Israel, while the Israeli market is not enjoying the fruits of the products produced at the local R&D centers.
But there is another way to look at it. As stated above, the activities of foreign development centers and of multi-national companies constitute sources for creating jobs, spawning new businesses and, of course, contributing to the economic output in Israel.
In order to cultivate original Israeli technological initiatives, the State of Israel cannot do without the multinational companies’ technological centers. There is no point in focusing on one tenth of the empty glass merely because a portion of the output developed in Israel is exported. On the contrary, we need to continue encouraging the activities of these companies in Israel. Such companies train thousands of employees, expose them to international processes and work methods, and prepare fertile ground for purchases of original Israeli technologies.
Ensuring the future of the foreign development centers is not merely a question of directly encouraging their activities here. We must not forget that the presence of foreign companies in Israel is affected by the local political climate. These centers are undoubtedly extremely important for Israel. However, a shift in global sentiments and in the attitude towards Israel may have a dramatic impact on the policies of international companies. Negative sentiments could indeed trigger a rapid about-face in the current trend and result in their reducing or even discontinuing their activities in Israel. One only needs to look at the impact of the U.S. sanctions on Russia’s economy in order to imagine what could happen in tiny Israel.
Israel is currently facing a period of turmoil – the upcoming elections, the change in neighboring Arab countries and the courses of action initiated by the Palestinian Authority. The outcome of these processes could lead to a dramatic change in preference for operating foreign development centers in Israel. It is disconcerting to imagine the impact of the exit of foreign development centers on Israel’s economy in general and on the high-tech eco-system in particular.