The State of Innovation – Why and How Multinationals Innovate in Israel

In addition to being home to a thriving home-grown innovation ecosystem, Israel also houses more than 530 multinational corporations (MNCs) from 35 countries. Seeking to participate in, contribute to, and benefit from the innovation phenomenon in Israel, most MNCs come from technology-heavy industries, with increasing numbers of companies from such “traditional” industries as healthcare, banking, and manufacturing also gravitating to Israel. Over the past five years, dozens of these MNCs have expanded the range of their Israeli innovation activities, often combining “pure” R&D with various types of collaboration with a wide range of start-ups, research institutions and even local corporates across various technologies and industries.

Why Israel?

Israel’s small, connected economy includes more than 6,600 entities sharing the innovation space – start-ups, investors, hubs, accelerators, VCs and more, a number which is 14 times the concentration of start-ups per capita in Europe. The Israeli community of entrepreneurs, coming from an economy that is a tenth of one percent of the world’s population, draws 19% of global investment in cybersecurity, ranks number one globally in R&D expenditures per GDP, and attracts the highest rate of venture capital funding per capita in the world ($674/per capita in 2018).

The benefits of an MNC having any kind of presence in Israel may appear to be obvious: generally, MNCs seek the renowned Israeli can-do attitude, the problem-solving mindset, the accessible and broadminded approach to innovation, and the eventual benefit of an improved and enhanced offering for their customers. Statistically, according to the PwC and Start-Up Nation Central Report “The State of Innovation”, 77% of MNCs come to Israel in order to enhance their core capabilities, 44% come to access the unique Israeli talent profile, and a surprising 28% come specifically for the innovation culture. However, once here, MNCs tend to discover that there are many advantages that are not quite so apparent at first glance.

Hidden Benefits: Co-operation Model And A Highly Collaborative Ecosystem

Israel has yet more to offer. In addition to everything described above, there is a level of openness, and a willingness to cooperate. This stems from Israel’s concentrated innovation ecosystem, which enables a diverse, creative combination of stakeholders with whom MNCs can collaborate, on synergetic ventures that in other markets would be considered implausible. Furthermore, by dispelling the surprise factor around this widely recognized benefit, MNCs are often quicker to experiment with open, integrated innovation activities that they would not otherwise consider. For example, Merck Group and Flex know this well. Both have a relatively long-standing footprint in Israel’s Innovation Economy, and together jointly developed the PMatX IIA-funded incubator around nanotechnology, which enabled both entities to realize significant mutual gain. “Nowhere else would we have collaborated with our competitors” is a phrase often uttered by many MNC innovation executives.

An Industry Where None Exists – The Case for Automotive

Israeli innovators are widely known for applying innovation to industries where the country has no real grassroots foothold. Despite having a virtually nonexistent local car industry, Israel has become an innovation powerhouse for the global automotive industry, as global automotive manufacturers – General Motors, Daimler, Volkswagen, Ford, Honda, Volvo and many more – are rushing to Israel to tap into local talent. These global giants combine local R&D centers, corporate venture capital arms, and deep collaboration with local start-ups developing breakthrough solutions in computer vision, cybersecurity and smart sensors.

Where and how to start?

How do multinational corporations looking to enter the ecosystem for the purposes of engaging with Israeli innovation take their first steps? What is the evolution that is expected of MNCs in this situation? While providing in-depth analysis, ways of operating and practical takeaways for every innovation “identity,” whether steered by R&D, partnerships or investments – the report also highlights common denominators for how companies can take their first steps. These include working with such local facilitators as industry, community or commercialization specialists, in addition to local hiring, relocation and acquisitions. The report also includes an MNC innovation profiler for innovation executives looking to build up their Israel innovation activity portfolio, as well as a decision tree roadmap, with milestones and guidelines for realizing successful innovation outcomes in Israel.

Click here to download the PwC and Start-Up Nation Central Report “The State of Innovation “, or for more information, contact Karin Gattengo.