Why Industry 4.0 is the Promising New Sector in Israel

The Industry 4.0 sector in Israel is showing impressive signs of development. From 2014-2018, Israel was ranked third in the world by VC investment after the US and China, and second, surpassing China, in early stage investments. There are now 230 start-ups focusing on Industry 4.0 in Israel, up 60% from 2014, and over 50 multinationals have a presence in Israel, whether through R&D, accelerators, or innovation hubs. , indicating an increase in international awareness for Industry 4.0 companies.

Despite its leadership in information and communications technology sectors, Israel’s strength in Industry 4.0 might seem surprising. After all, Israel does not have a strong manufacturing sector that can serve as a first-customer or from which start-ups and entrepreneurs can spin-out.

So why is it happening in Israel?

1. The Ocean is Blue

From interactions with many start-ups in this field, Start-Up Nation found that many of these start-ups did not come from the manufacturing industry, but rather chose this sector as part of a “blue ocean” strategy. They believe that this large and fast-growing market gives new entrants a better opportunity to make a larger impact, as the market is not yet crowded and every small improvement in efficiency that they offer can have a potentially dramatic effect on profitability.

2. The Spillover Effect

The Israeli Industry 4.0 sector benefits from past achievements in other sectors. Israel is known for its vibrant and innovative ecosystem with sectors such as Cybersecurity and Fintech leading the way; investors already familiar with the country who have invested in multiple companies are willing to invest in other domains, especially when they are recommended certain start-ups or know them by association. Also, multinational corporations that are already active in Israel have extended their efforts to the Industry 4.0 sector; for example, Volkswagen opened an innovation arm called Konnect, and PMatX is an open innovation lab operated by the German healthcare company Merck and the American semiconductor company Flex.

3. Government Support

Industry 4.0 has sparked significant government interest to garner support for several initiatives. In 2018, the Ministry of Economy published a strategic plan for this sector emphasizing the need for connecting the manufacturing industry with tech start-ups developing solutions for them.

The Israel Innovation Authority has also emphasized advanced manufacturing as a theme in its five-year strategic plan. Alongside the standard MOFET program that supports R&D for advanced manufacturing, the Innovation Authority also launched the Innovation Labs Program in 2017. This program encourages open innovation and offers entrepreneurs the opportunity to reach proof of concept through access to a large corporation’s unique technological infrastructure and industry expertise.

4. This is Our Nature

Israel has developed expertise in the main technologies that Industry 4.0 utilizes: sensors, image and video processing, big data, algorithms, and real-time analytics. Many young people gain experience in these technologies during their military service, providing them with detailed knowledge of how they work and various use cases for them. This knowledge is utilized later to either start or seek employment in companies which utilize non-military applications of the technologies. As mentioned above, Industry 4.0 is one of the more attractive sectors to exploit this experience.

The development of Industry 4.0 in Israel bears some similarities to Israel’s achievements in the advanced automotive sector. That sector lacks a history of large-scale manufacturing in the country, yet this has been overcome by a strong infrastructure for start-ups consisting of technical skills, experienced entrepreneurs, the availability of capital and government assistance. Industry 4.0 is a more recent development, but these elements also appear to be driving the strong growth experienced in the sector so far.

To learn more about the Industry 4.0 ecosystem in Israel and its growth, download Start-Up Nation Central’s Finder Insights Series: Israel’s Industry 4.0 Sector in 2018.