Table of contents Introduction 4

Acknowledgments 5

Howtoreadthisreport 6

Theleadingindicators 7

Index–Graphs&Charts:ThePositionofIsraelontheIndicators 8

Part 1: The Intellectual Capital of the State of Israel 9ResearchMethodology 10SkandiaModel 10

TheStateofIsrael-GeneralDescription 13

TheVisionofInnovationintheStateofIsrael 13

FinancialCapital 14

MarketCapital 18

ProcessCapital 20

HumanCapital 24

Renewal&DevelopmentCapital 26

Summary 32

Part 2:The Office of the Chief Scientist –an Overview 33Introduction 34InternationalActivities 34ActivitiesinIsrael 43

Part 3: Israeli Success Stories 47InSightechLtd 48GivenImaging 49Alvarion 50IDE-TechnologiesLtd 51

Sources 52

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AfundamentalprincipleofthevisionoftheStateof Israel istheunderstandingthat intheabsenceofnaturalresources,relianceonhumancapitalandknowledgehasbeenthemostfittingandnaturalchoice.Education,R&D,andtechnologicalinnovationhavebeenthekeysuccessfactorstothenation’seconomicandsocialdevelopment,aswellasthebasisforitsnationalstrength.

The extensive, and seemingly inexhaustible, supply of human resources in Israel hasmade such a strategic emphasis possible. Israel's human capital ischaracterizedbyauniquecombinationofbroadinterdisciplinaryknowledge,entrepreneurialspirit,creativity,andoriginalthinking.Thesequalitieshaveledtoaconstantflowofnewideas,innovativedevelopments,andbreakthroughtechnologies.

TheOfficeoftheChiefScientist,withintheMinistryofIndustry,Trade,andLabor,ismandatedtoexecutegovernmentpoliciesregardingtheencouragementof industrial R&D in Israel.Within this framework, theOfficeof theChief Scientist operates abroad rangeofprograms that encourage technologicalentrepreneurship,enhanceIsrael'sscientificresources,broadentheknowledgebaseoftheindustry,andpromoteR&Dcooperationatboththenationalandinternationallevels.

ThesynergybetweenprudentgovernmentpolicyscientificexcellenceandbusinessapproachhasbornefruitforIsrael'sindustrialsector,aswellasforitsacademicinstitutions.ThisismanifestedinthemanyoutstandingachievementsmadebyIsraelicompaniesandindividualsonaninternationalscale.

Israel's Intellectual Capital Report presents Israel’s core competencies, key success factors, and hidden assets, all of which provide the country with comparative advantages and high growth potential.

The Intellectual Capital Report highlights Israel’s competitive edge in the international market. The profile of Israel that emerges from this comparative study is clearly one of a nation that is a superior partner for global business and worldwide collaboration. The report also presents Israel as a nation that offers great potential for international investments.

ThispapersurveysthecompetitiveadvantagesoftheStateofIsrael,whichincludetechnologicalexcellence,humancapitalandmoderninfrastructure,alongwithothercharacteristicsthathaveplacedIsraelattheforefrontofscience,innovation,andtechnology.

IampleasedtopresentIsrael’suniquecharacteristicsandthecountry’sgrowthpotentialasoutlinedinthefollowingstudy,aswellasinthevariousR&DsupportprogramsofferedbytheOfficeoftheChiefScientist.AstheStateofIsraelentersits60thyear,suchpromisingstatisticsonIsrael’sstatusinrelationtotherestoftheworldencourageustocontinuetoseekoutnewchallengesandareasforfuturegrowth.

Dr Eli OpperThe Chief Scientist of the Ministry

of Industry, Trade and Labor

Introduction

< �

AcknowledgementsTheIntellectualCapital(IC)ofIsraelReportaimstointroduceboththetangibleandtheintangibleassetsoftheStateofIsraelforfuturegrowth.ThisreportisbasedoninformationanddatacollectedfrominternationalstatisticalpublicationsandthroughkeyfiguresinIsraelhailingfromabroadrangeofdisciplines.

We wish to thank all those who have shared their valuable time with us and helped us in the process of collecting the information for this edition:

•MinistryofIndustry,Trade,andLabor •BankofIsrael•MinistryofFinance •TheIsraelAcademyofScienceandHumanities•Manufactures'AssociationofIsrael •TheNeamanInstitute,theTechnion•TheIsraelExport&InternationalCorporationInstitute •IsraelIVC•StandardInstitutionofIsrael

As Israel celebrates 60 yearsof independence,this3rdversionofthe IntellectualCapitalReportof Israeltakesonanever increasingimportanceinmeasuringthecollectiveachievementsofthecountry.ThefirsteditionwasaprivateversionhandledbyEdnaPasherPh.D.&Associatesin1998.Thesecondedition(2004)wascommissionedandsupportedbytheChiefScientistoftheMinistryofIndustry,TradeandLabor.ThiscurrenteditionwasalsoinitiatedandsupportedbytheChiefScientist,Dr.EliOpper,whohasturneditintoanationalmeasurementtooltopromoteIsraelasakeyplayerintheglobalmarket.

Sinceitsfirsteditionin1998,theIntellectualCapitalRepotofIsraelhasbecomeasourceofinspirationforsimilarexercisesallovertheworld–presented,discussed,andreferencedinmanyacademicconferencesandpapersincludingtherecentglobaleventonKnowledgeBasedDevelopmentinFORUM2007-TheUniversalForumofCulturesandKnowledgeMonterrey2007inassociationwithUNESCO(followingthefirstoneinBarcelonain2004).

ThereportwaswrittenbyDr. Edna Pasher and Ms. Sigal Shachar, EdnaPasherPh.D&AssociateswiththegovernmentalguidanceofMr.AviramZolti,OCS.

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How to read this reportThispaperfocusesonthestudyofthehiddenvaluesofthestateofIsrael,andintroducesitsimpressiveachievementsinvariousfields.Inrecentyears,Israelhasbecomeahothouseforsomeofthemostprofitabletechnologicaldevelopmentsinwhichthebasisforcompetitiveadvantageandfuturegrowthpotentiallies.

ThebooklethasbeenproducedbytheChiefScientistoftheMinistryofIndustry,Trade,andLaborinordertopresentIsrael'spotentialtoinvestors,businesspeople,andpartnersfromallovertheworldbyprovidingacomprehensivepictureofthekeysuccessfactorsofIsrael,suchaseconomicgrowth,researchanddevelopmentinscientificfieldsandhi-tech.Inaddition,thereportprovidesanupdatedlistofgovernmentsupportprogramsandprofilesasamplingofsuccessfulIsraelicompanies.Thebookletincludesthreeparts:

Part 1: The Intellectual Capital of Israel ReportThisreportisthe3rdeditionoftheIntellectualCapitalReport.The2ndeditionwaspublishedin2004bytheChiefScientistoftheMinistryofIndustry,TradeandLabor,andthefirstin1998byEdnaPasherPh.DandAssociates.Thereportisbasedonthetheoreticalmodelcalledthe"SkandiaNavigator"developedbyProf.LeifEdvinsson.Themodelhas5focalareas,whichalltogetherconsiderthetangibleandintangibleassetsofIsrael,namely:FinancialCapitalmarketCapital,HumanCapital,ProcessCapital,andRenewalandDevelopmentCapital.TheseassetsareintegratedtovisualizeIsrael’scompetitiveedgeintheglobaleconomy.TheIntellectualCapitalBalanceSheetisbasedondataandinformationcollectedfrominternationalpublications,suchasOECD,theHumanDevelopmentReport,IMD,theGlobalCompetitivenessReport,amongothers,aswellasfromnationalsourcesandkeyfiguresfromgovernmentalofficesandacademia.

The main findings and The Leading Indicators Thestudyshowsthat,despiteitssmallsizeandrelativelyyoungage,Israelhasmanyexceptionallyoutstandingcompetenciesatitscore:•Excellent human resources:ahighlyeducatedworkforceanduniqueculturalcharacteristicssuchascuriosity,creativity,apositiveoutlook,innovativethinking-allofwhichare

importanttothesuccessofhigh-techresearchanddevelopment.•Modern infrastructure:asupportivebusinessenvironment,ahighlyadvancedbankingfinancialsector,legalprotectionofforeigntrademarksandpatents.•Cutting edge technology and scientific breakthroughs:Israelisoneofthelargestcentersintheworldforhigh-techstartupenterprises.

< �

The Leading Indicators

Figure no. Source Indicators Israel‘s position

1.1 OECD,2006 G.D.PGrowthComparison 5

2.2 TheGlobalCompetitivenessReport2006 GCIIndicator(GlobalComp.Indicator) 15(outof125countries)

3.6 CentralBureauofStatistics,2006NationalExpenditureonEducationasapercentageofGDP,2003

1

4.1 TheGlobalCompetitivenessReport2006-7 AvailabilityofScientistsandEngineers 1

5.9 IMD,2004 TotalExpendituresonR&D(percentageofGDP),2004 1

5.11 TheGlobalCompetitivenessReport2006-7 VentureCapitalAvailability 2

Part 2: ThispartincludesacomprehensivelistingofgovernmentsupportprogramscurrentlyoperatinginIsraelinordertobuildfinancialsupportandacooperativeinfrastructureforforeigninvestorsandbusinesspeople.

Part 3:ThispartincludesafewexamplesofsuccessfulIsraelicompaniesinvariousfieldswithspecialcontributiontohumanneeds.WechoosetopresentsomeinnovativeIsraelihigh-techcompaniesthathavesignificantcontributiontotheworldwealth.

Thecompaniesare:1.InSightech Ltd.hasdevelopedamedicaldeviceforMRimaging.ThisproductisaMagneticResonanceImaging(MRI)withfocusedultrasoundenergy–anewtreatmentmodality

thatcanreplaceinvasiveproceduresandprovidetherapeuticalternativestomillionsofpatientswithseriousdiseasesaroundtheglobe.

2.Given ImagingdevelopedthePillCam™videocapsulewhichisadisposable,miniaturevideocameracontainedinacapsulethatcanbeeasilyingestedbythepatient.

3.Alvarionistheworld’sleadingproviderofinnovativewirelessbroadbandnetworksolutionsenablingPersonalBroadbandtoimprovelifestylesandproductivitywithportableandmobiledata,VoIP,video,andotherservices.

4.IDE Technologies Ltd.isapioneerandleaderindevelopmentenviornmentallyfriendlyandeconomicalplantsforsalinewaterdesalination,industrialstreamspurification,andeffluentconcentration.

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Index-Graphs & Charts: The Position of Israel on the Indicator

Figureno. Indicators

Israel'sp

osition

1.1 G.D.PGrowthComparison,2005 5

1.2 G.D.PGrowthQuarterly,atannualrate1995-2006 -

1.3 ExternalDebt,GrossandNet -

1.4 ICTEmployment(asapercentageoftotal)Businesssector2003 4

1.5 QuarterlyEmploymentandUnemploymentinIsraelsince1999 -

1.6 IndustrialProductionbyMajorBranches,2006 -

1.7 ManufacturingExportbyTechnologicalIntensity(net),2006 -

1.8 ManufacturingExportbyTechnologicalIntensity,1991 -

1.9 AnnualInflation,1987-2006 -

2.1 AttitudesTowardGlobalization,2006 8

2.2 GCIIndicator,2006 15

2.3 FlexibilityandAdaptability,2006 3

2.4 ResilienceoftheEconomy,2006 6

2.5 NobelPrizesPerCapita-2005 7

3.1 InformationTechnologySkills,2006 3

3.2 TechnologyReadiness 3

3.3 PersonalComputersper(100inhabitants),2004 4

3.4 Cellularsubscribers(per1000people),2006 3

3.5 CyberSecurity,2006 8

3.6 NationalExpenditureonEducation,2003 1

3.7 HigherEducationAchievement2003 6

3.8 QualityofScientificInstitutions,2006 3

3.9 KnowledgeTransfer,2006 4

3.10 LegalEnvironmentSupportsScientificResearch,2006 5

3.11 Start-UpDays–NumberofDaysToStartaBusiness-200512days

3.12 ISO13485-MedicalDevices-QualityManagementSystems,2005 9

3.13 AgriculturalProductivity,2005 3

4.1 HighSkilledLaborForce,(Engineersper10,000employees),2004 1

4.2 AvailabilityofScientistsandEngineers,2006 1

4.3 FemaleLaborForce2005 9

4.4 LifeExpectancy,2004 8

4.5 Physicians(per100,000people)1990-2004 7

5.1 Nasdaq-highCorrelationbetweenTASEandtheNYSE -

5.2 NumberofScientificPublications 3

5.3 University/industryresearchcollaboration,2006 6

5.4 NumberofPatentsRegisteredintheUS,during2003 3

5.5 ShareofEPOPatentApplicationsownedbyUniversities2001-03 3

5.6ICT-RelatedPatentsasaPercentageofNationalTotal(PCTfilings),2006

3

5.7 NumberofUtilityPatentsGrantedperMillionpopulation,2005 5

5.8 BiotechnologyPatents 7

5.9 TotalExpendituresonR&D(percentageofGDP),2004 1

5.10 VCInvestmentbysector,2006 -

5.11 VentureCapitalAvailability 2

5.12 CapitalraisedbyIsraeliHighTechCompanies -

5.13- CapacityforInnovation2006 8

5.14 Entrepreneurship 5

Human Capital

Process Capital

Market Capital

Renewal and Development

Capital

Financial Capital

10 >

Intellectualcapitaliscomprisedoftheknowledge,wisdom,capability,andexpertisethatprovideanorganization/countrywithacompetitiveadvantageoverotherorganizations/countriesanddetermineitspotentialforfuturegrowth.

TheIntellectualCapitalisatheoreticalmodelcalled"Skandia Model"developedbyProf. Leif Edvinsson,theformervicepresidentforIntellectualCapitalatSkandia,aSwedishglobalfinancialservicescompany.Themodelmeasuresthetangibleandtheintangibleassetsoftheorganization/country/region.

WehavechosentheIntellectualCapitalReportasatooltonavigateandguideIsrael’srealizationofitsgoals.The Intellectual Capital Reportprovidesthereaderwithanintegratedandbalancedpictureofthecountry’spotentialforfuturegrowthasweseeittoday.

In1998,Israelwasthesecondcountryintheworld,afterSweden,toproduceanationalIntellectualCapitalBalanceSheet.Sincethen,manycountrieshavemeasuredtheircorecompetenciesandcompetitivenessintheglobaleconomyusingthistool.

Skandia ModelTheSkandiamodelprovidesabalancedandholisticpictureofbothfinancialcapitalandintellectualcapital.Thismodel,which isused tomeasure intellectualcapital,uses themetaphorofahouse to represent theorganizationornation.Financial capitalconstitutestheroofofthehouseandreflectstheorganization'shistoryandpastachievements.Financialcapitaldoesnotnecessarilyenlightenusaboutfutureachievements.Thesupportingcolumns-process capitalandmarket capital-constitutetheareasuponwhichthepresentoperationsoftheorganizations/nationsarebased.Renewal and development capital,issituatedinthefoundationofthehouse,measureshowtheorganization/nationpreparesforitsfuture.Human capitalisinthehouse’scenterandinteractswithallthedifferentfocalpoints.Humancapitalistheheartoftheorganization/nationandiscomposedofthecapabilities,expertise,andwisdomofthepeoplewithintheorganization/nation.Itistheroleoftheorganization/nationtoassist,guide,andsupportitspeopletowardsrealizingtheirstrategicgoals.

Research Methodology

< 11

Skandia Navigator

The Focal Areas of the Model:Thevaluechain,accordingtoLeifEdvinssonexpressesthevariouscomponentsofmarketvalueinthefollowingmodel:Market Value = Financial Capital + Intellectual Capital

Human CapitalHumancapital includesknowledge,wisdom,expertise,intuition,andtheabilityofindividualstorealizenationaltasksandgoals.Thisfocalareaalsoincludesthevaluesencompassedwithinthecultureandphilosophyoftheorganization/nation.Itisimportanttonotethathumancapitalisthepropertyofindividuals,nottheorganization/nation.

Process CapitalCooperationandtheflowofknowledgerequirestructuralintellectualassets, suchas information systems,hardware, software,databases,laboratories,anorganizational/nationalinfrastructure,andamanagementfocus.Suchstructuralintellectualassetssustainandincreasetheoutputofhumancapital.

Market CapitalMarketcapitalreferstothegeneralassetsembodiedintheorganization/nation’srelationshipwiththe internationalmarket.Theassets inthisfocalpointincludecustomer/nationloyalty,aswellasthesatisfactionexpressedbystrategiccustomers,brands,etc.

Renewal and Development CapitalRenewalanddevelopmentcapitalreferstotheorganization/nation'scapabilities and real investments made in an effort to increase itscompetitivestrengthinfuturemarkets,which,inturn,encouragesfuturegrowth.Renewalanddevelopmentassetsincludeinvestmentsinresearchanddevelopment,patents,trademarks,start-upcompanies,etc.

SkandiaNavigator

FinancialCapital

ProcessCapital

HumanCapital

MarketCapital

Renewal&DevelopmentCapital

Past

Present

Future

Intellectual Capital

12 >

Israel's IntellectualCapitalReportpresents Israel’s corecompetencies,key success factors,andhiddenassets:allofwhichprovide thecountrywithcomparativeadvantageandhighgrowthpotential.

TheIntellectualCapitalBalanceSheetisbasedondataandinformationcollectedfrominternationalstatisticspublications,suchasOECD,theHumanDevelopmentReport,IMD,theGlobalCompetitivenessReport,etc.,aswellasfromnationalreportsandkeyfiguresinthegovernmentandacademiaworlds.

TheIntellectualCapitalReporthighlightsIsrael’scompetitiveedgeintheinternationalmarket.TheprofileofIsraelthatemergesfromthiscomparativestudyisclearlyoneofanationthatisasuperiorpartnerforglobalbusinessandworldwidecollaboration.ThereportalsopresentsIsraelasanationthatoffersgreatpotentialforinternationalinvestments.

Inthefollowingdocument,weattempttoprovidean integrativepicturethatcoverseachof Israel’sdiversefieldsofactivityalongwithan in-depthexaminationoftheintellectualassetsassociatedwitheachoftheseareas.

IntellectualCapital FinancialCapital

StructuralCapital HumanCapital

OrganizationalCapital MarketCapital

Renewal&DevelopmentCapital

ProcessCapital

MarketValue

< 13

The State of Israel - General Description

In the21stcentury, Israel is facedwith theexceedinglydemandingchallengeofdevelopment,growth,andrenewal inan increasinglydynamicandcompetitiveworld.Israelisaleadinginnovativenationinnumerousfields.Placing its strategic emphasis on human capital and knowledge has been a fitting and natural choice for Israel given the absence of natural resources within the country, and the 2000 years of intellectual legacy of the Jewish people in exile, with little access to tangible sources for value creation such as land.

TheIsraeligovernmenthasaveryclearstrategicpolicytoencourageinnovation.TheLawforEncouragementofIndustrialResearchandDevelopment(1984)actsasthegeneralmandatetotheOfficeoftheChiefScientist(OCS),whichislocatedwithintheMinistryofIndustry,Trade,andLabor.AnotherimportantpolicyofthisofficeistosupportandtoenhanceinternationaltradecooperationbetweennationsandbetweenIsraelicompaniesandforeigncompanies.

Israelisblessedwithcreativeandinnovativeminds,andthus,iscapableoftransformingnewideasintoproductsofhighaddedvaluewithinashortperiodoftimewithamodestbudget.Thisprocesshasthepotentialtoshrinkthebalanceofpaymentsdeficit,therebyacceleratingprogresstowardseconomicindependence.Assuch,Israelhaschosentoinvestmoreininnovationandhumanresourcesthanininfrastructure.

TheIntellectualCapitalReportdemonstratesthesehiddenvaluesofthecountryanditscompetitiveadvantage,makingthereportavitalmarketingtool.WearehappythatIsrael'sIntellectualCapitalReporthasbecomeaneffectivetoolindepictingIsraelinitstruestform.

The Vision of Innovation in the State of Israel

TheStateofIsraelislocatedinwestAsia,onthesoutheasternedgeoftheMediterraneanSea.ItsharesaborderwithLebanoninthenorth,SyriaandJordanintheeast,andEgyptinthesouthwest.Israelhasadiversepopulationof7,150,000citizens,accordingto2007estimates,andsitsonanareaof20,770squarekilometers.UnlikemostothercountriesintheMiddleEast,Israel is a developed, modern, democratic, and pluralistic country that is attractive to investors and business partners from all over the world.

Despiteitssmallsizeandrelativelyyoungage(60yearsofindependence),Israelhassucceededinaccomplishinggreattechnologicalachievements.Itisattheforefrontofabroadrangeofdisciplinessuchasagrotechnology,biotechnology,computer-aidededucation,anddatacommunication.Israelhasanopeneconomywhichisfullyintegratedintheglobaltradingsystem.

Israelhasworld-classeducational institutions.Research isperformedateachof Israel'ssevenuniversities,fivetechnicalcolleges,andtenspecializedresearchinstitutes.Furthermore,thereisstrongcollaborationbetweenuniversitiesandtheindustrialsector,whichcreatesinnovative,dynamic,andnewideasforfuturedevelopment.

1� >

Financial capital reflects the tangible economic achievements of the country such as: GDP, structure of industry, workforce, rate of services and products per year, etc.

Various figures in the Israeli economy forecast Israel's economic growth rates. These forecasts are mainly based on past performance and statistical data that express the rate of change in tangible assets.

In this chapter, we will present a number of economic indicators that reflect the yields in the country's growth rate during its �0 years of independence.

Gross Domestic Product (GDP) AccordingtotheanalysisoftheBankofIsrael,since2003,economicactivityhasbeenshowingsignsofrecoveryduetotheexpansionofglobaltrade,hi-techactivityandlesseconomicuncertainty.

Thisrecoveryisreflectedinsubstantialincreasesinexportsandinprivateconsumption.In2006,GDPgrowthregisteredat5.1%.

ThisgrowthcanbeattributedtothepositivetrendsintheworldeconomyandthereductionofuncertaintyinthefiscalpolicyoftheIsraeligovernment.

External DebtAttheendofMarch2004,thenetexternaldebt(totalexternalliabilitiesminusexternalassets)was-6.2%oftheGDP.InSeptember2006,thenetexternaldebtstoodat-22.0%oftheGDP.

ThisfigureshowsthatIsrael'sexternalassetsaregreaterthanitsexternalliabilities.Inpreviousyears,liabilitiesweregreaterthanassets.Thisgivesfurtherindicationthatthelikelihoodofabalance-of-paymentscrisisissmall.

Figure 1.2 > G.D.PGrowthatAnnualRate

Source: Economics and Research Department, Ministry of Finance, 200�

10.0

8.0

6.0

4.0

2.0

0.0

-2.0

1990

1994

1995

1996

1997

1998

1999

2000

1991

1992

1993

2002

2003

2004

2005

2006

2001

6.66.1

7.2

3.8

7.06.5

5.6

2.8

4.2

2.9

8.7

-0.6 -0.9

1.5

4.8 5.2 5.1

Figure 1.1 > G.D.PGrowthComparison,2005Turkey

SlovakRepublicCzechRepublic

IcelandIsrael

HungaryKorea

GreeceSpain

PolandIreland

USADenmark

CanadaJapan

UKFrance

Germany

7.4

8.0Source: OECD, 200�

3.02.01.00.0 7.06.05.04.0

6.1

6.0

5.5

5.2

4.1

4.0

3.7

3.4

3.2

3.1

2.9

2.6

1.8

1.2

1.0

3.2

3.2

Figure 1.3 > ExternalDept,GrossandNet(percentageofG.D.P.,end-period)

100

80

60

40

20

0

-20

199

0

1995

199

8

199

9

200

0

2002

2003

200

4

2001

2005

200

6

Source: Economics and Research Department, Ministry of Finance, 200�

< 1�

The Labor Market

ICT EmploymentIn2000,thedevelopedandadvancedhigh-techindustryand the healthy labor market in Israel created manyjobs,particularlyintheInformationandCommunicationTechnologies(ICT)sector.AccordingtoOECDstatistics,therateofICTworkersemployedintheIsrael’sbusinesssectorin2000was8.2%.In2003,thisratedecreasedbutstillremainshighwith7.6%ICTworkers,placingIsrael4thinrelationtootherdevelopedcountries.

The Israeli workforceFollowingtheeconomiccrisisofthehigh-tech industryin 2000 that occurred throughout the Western worldaswellasinIsrael,therewasalabormarketshockthatleftmanypeopleunemployed.Theunemploymentrateincreasedfrom10.9%in2000to10.3%in2003.However,throughout2003andearly2004,thelabormarkettookapositiveturnasIsraelisrejoinedtheworkforceandjobswerecreated.In2006,theunemploymentratedecreasedto7.7%.

ThenumberofIsraeliemployeesintheworkforceincreasedsignificantlybetweenthefirstquarterof2003andthethirdquarterof2006,increasingby262,000employees.In 2006, the number of Israeli employees in the workforcestoodat2,608,000.Thispositivetrendinthelabormarketreflectsthegovernment'ssuccessfulapplicationofitspolicyofloweringtransferpaymentstotheunemployedandcreatingnewplacesofwork.

Industrial Production by Major Branches Overthepastfewyears,theemphasisonproductionshiftedfrom the traditional sectors tomoreknowledge-basedsectors.High technologicaldevelopmenthas increasedtheproductivityofthissector.

AsisshownbyMinistryofIndustryandTradedata,themetals,machinery,andelectronicsindustriesarethelargestmajorbranchesofindustrialproduction,togethermakingup43.5%ofindustrialproduction.

Source:Economic &Planning Administration, Ministry of Industry, Trade & Labor, 200�

Figure 1.� > IndustrialProductionbyMajorBranches,2006

LightIndustries

2.9%

MetalsMachinery&Electronics

43.5%

Mining&Minerals

2.2%

PolishedDiamonds

17.9%

Textiles,Clothing&

Leather3%

Chemicals&Plastics28.5%

Food&Drink2%

FinlandSwedenIreland

IsraelNetherlands

FranceDenmark

NorwayJapan

AustriaCanada

ItalyUK

USAGermany

Source: OECD, 200�

6.04.02.0 12.010.08.0

9.7

9.1

8.1

7.6

7.5

7.4

6.8

6.7

5.7

5.5

5

4.6

7.1

7.2

0.0

5.7

ICTEmployment(asapercentageofTotalBusinessSector,2003)

Figure 1.� >

Figure 1.� >

-2700

-2600

-2500

-2400

-2300

-2200

-2100

-2000

-1900

-1800

12-

10-

8-

6-

4-

2-

0-1999 2006

19992000

20002001

20012002

20022003

20032004

20042005

20052007

2006

8.9 8.68.6

10.510.8 10.9

9.2

8.8

8.37.7

Quarterlyemployment&unemployment

Source: Bank of Israel, 200�

1� >

Israeli Exports by Industry Intheearlyyearsofitsexistence,Israel'sexportsconsistedof agricultural products in overwhelming proportionscomparedtothesizeofthemarketatthattime.Outofa totalof$50millionworthof exportgoods in1950,agriculturalproductsmadeup$35million.Overtheyears,thecompositionofIsrael'sexportshaschanged.Effortshavebeendirectedtowardsthedevelopmentandexportofknowledge-basedproducts,mainlyelectronicproducts,computersoftware,pharmaceuticals,andothers.

According to Israel's Export Institute, the leading

manufacturingexportsbytechnologicalintensityin2006werehigh-techindustries(48%)–anapproximately2-foldincreasesince1991(23%)–andIsraelisoftwaresales,whichhaveincreasedbyover700%overthelast10years,asitcanbeshowninthefollowingfigures.

InflationInflationsince1999hasbeenclosetozero.In2005,theConsumerPriceIndexclimbedby2.4%.In2006,itdeclinedby0.1%.Thisdeclinewaslargelyaresultoftheweaknessofthedollar,thedeclineinoilprices(inthesecondhalfof2006),aswelltheIsraeligovernment’stightcontrolpolicyina

Figure 1.� > ManufacturingExportsbyTechnologicalIntensity-2006

Source: The Israeli Export & International Cooperation Institute, 200�

LowTechnologyIndustries

7%

Medium-HighTechnologyIndustries

27%

Medium-LowTechnologyIndustries

18%

HighTechnologyIndustries

48%

Figure 1.� >

Source: The Israeli Export & International Cooperation Institute, 2003

ManufacturingExportsbyTechnologicalIntensity,1991

LowTechnologyIndustries

17%

Medium-HighTechnologyIndustries

20%

Medium-LowTechnologyIndustries

40%

HighTechnologyIndustries

23%

AnnualInflation1986-2006(endofperiod)

199

4

Source: Economics and Reseaech Department, Ministry of Finance 200�

26.00

21.00

16.00

11.00

6.00

1.00

-4.00

198

619

8719

88

198

919

90

1991

1992

1993

1995

199

619

9719

98

199

920

00

2001

2003

200

420

0520

06

19.7

16.116.4

20.7

17.618.0

9.411.3

14.5

8.1

2002

10.6

7.08.6

1.30.0

1.4

6.5

-0.1

1.22.4

Figure 1.9 >

-1.9

< 1�

Human Capital

Market Capital

Renewal and Development

Capital

Process Capital

A brief review of Israel's economic history and a look at its 2006 economic profile does not give us an indication of the country’s true growth potential. In accordance with our mission, we will now try to define the country's core competencies and key success factors, since these intellectual assets provide the country with a long-term advantage.

1� >

Market capital reflects the intellectual capital embedded in Israel's relations with other countries. The intellectual assets in this area are derived from Israel's capabilities and successes in providing an attractive, competitive solution to the needs of its international clients, as compared with other countries.

Indicators such as openness to globalization and the flexibility and adaptability of Israeli companies to the dynamic global market reflect the resilience of the Israeli economy and its core capabilities in market capital. All of these produce a basis for assessing the country's attractiveness in the eyes of international businessmen and foreign investors.

Openness to GlobalizationTheglobalmarketoffersagreatopportunityforcompaniesandcountriestotapintolargermarketsaroundtheworld.It means they can have access to more capital flows,technology,cheaperimportandlargerexportmarkets.

Sincethe1990's,Israelhasexposeditsdomesticindustrytoforeigncompetition.Israelhasconcentratedonpromotingexports,openingnewmarkets,andexpandingexistingones.Israel'stradepolicywasenhancedbyawiderangeoftradeagreementsandcommercialarrangementswithcountriesandinternationalinstitutions,whichenableIsraeliexportstocompeteontheinternationalmarketwithoutdiscriminationandunderfairconditions.

IsraelhasapositiveattitudetowardsglobalizationasisshownintheIMDdatafrom2006.Israelwasranked8thoutof61countriesparticipatinginthesurvey.

Competitive Advantage – Israel from a Global Perspective TheWorldEconomicForum(WEF)developedanewindicator–GlobalCompetitivenessIndicator–thatexaminesthelevelofcompetitivenessofthecountriesintheworld.In2006,125countrieswereexaminedinthesurvey.Thisindicatordividesthecountriesintothreegroupsaccordingtotheirstageofdevelopment.ThetransitionfromstagetostagedependsonthechangesintheGDPofeachcountry.TheGCIindicatortakesintoaccountmanyindicatorsineconomic,politicalandenvironmentalareas,allofwhichfallunderninecategories.Thesecategoriesaredividedintothreegroups:

First group:institutions,infrastructure,macroeconomy,health,andeducation.Second group:highereducation,marketefficiency,andtechnologyreadiness.Third group: high-techandinnovation.AccordingtotheGlobalCompetitivenessReport,Israel was ranked 15th out of 125 countries in terms of its GCI.Accordingtothissurvey, Israel isoneofthemostcompetitivecountries.OneofthereasonsforIsrael'shighranking is the fact that the improvement in theglobaleconomyhasmanifesteditselfinincreaseddemandforhigh-techindustry,whichisacentralcomponentofIsrael’sindustrialexport.

Figure 2.1>

HongKong

Iceland

Singapore

Chile

Ireland

Denemark

Taiwan

Israel

Netherlands

India

Japan(14)

UK(20)

U.S.A(26)

Germany(39)

France(61)

8.0Source:IMD World Competitiveness Yearbook 200�

3.02.01.00.0 7.06.05.04.0

8.87

8.50

7.93

7.7

7.61

7.57

7.26

7.08

6.98

6.54

6.25

5.40

2.54

7.29

7.38

9.0 10.0

AttitudeTowardGlobalization

Figure 2.2 > GCIIndicatorSwitzerland

FinlandSweden

DenemarkSingapore

U.S.AJapan

GermanyNetherlands

UKHongKong

NorwayTaiwanIceland

IsraelCanadaAustriaFrance

Australia

Source:The Global Competitiveness Report, 200�-�3.02.01.00.0 6.05.04.0

5.7

5.61

5.6

5.58

5.56

5.54

5.41

5.4

5.38

5.37

5.32

5.31

5.29

5.42

5.74

5.76

5.46

5.81

5.63

< 19

Membership in OECD Israel was recently offered membership in the OECD,anorganization foundedto facilitatedevelopmentandeconomiccooperationamongthedevelopedcountries.ThisproposalcameafterimpressiveachievementswithinIsrael'seconomyinrecentyearsandwillmakeIsraelafullmemberinthisexclusiveclubof30developedcountries.InadditiontothepositiveimpactofOECDmembershipfor Israel, it will also allow Israel to unify its statisticalreportswiththoseoftheOECD,providingthecountrywith a clear perspective of its place among the otherdevelopedcountries.

Economic ResilienceTheworldwideeconomyisverydynamic.Countriesarefacedwithmanychallenges,suchasnewmarkets,newcompetitivecompanies,newneeds,etc.Oneofthemostsignificantindicatorsusedtoexamineacountry'sstrengthandstabilityisitsflexibilityandtheextentofitsadaptabilitytonewchallenges.

AccordingtotheIMDsurvey,in 2006 Israel was ranked 3rd in terms of the flexibility and adaptabilityofactorswithintheeconomywhenfacedwithnewchallenges.

Anotherimportantindicatorthatportraysthecountry'sabilitytorespondquicklytochangesandchallengesistheresilienceofitseconomy.Followingtheworldwidehigh-techcrisis in2001,Israelwasoneofthefirsteconomiestorecoverquicklyandtoredirectitsattentiontogrowthanddevelopment.The2006IMDsurveyalsoshowsthatIsraelhasstrongeconomic resiliencetotheeconomiccycleofbustsandbooms.Israel was ranked 6th.

Nobel PrizesNobel Prizes are awardedby the Nobel Foundation ofSweden to men and women who have rendered thegreatestservicetohumankind.Between1901and2006,morethan750NobelPrizeshavebeenawarded.

Inrecentyears,IsraelischolarshavewonNobelPrizes,inchemistry(2004)–Prof. Aaron CiechanoverandProf. Avraham Hershko, both from the Technion – IsraelInstituteofTechnologyinHaifa–andineconomics(2005)–Prof. Israel (Robert) OumanfromEinsteinInstituteforMathematicsandtheRationalityResearchCenterintheHebrewUniversityinJerusalem.

InasurveyconductedbyIMDin2005,Israelwasranked7thinNobelPrizespercapita,measuredpermillionpeople,awardedinphysics,chemistry,physiology,medicine,andeconomicssince1950.Thisisquiteanimpressiveperformancewhenconsideringthesmallsizeandyoungageofthecountry.

Figure 2.�>

Australia

U.S.A.

Denmark

HongKong

India

Israel

Ireland

Norway

Chile

Canada

Switzerland

Japan(14)

UK(21)

Germany(48)

France(51)

Italy(58)

7.39

83210 7654

7.22

7.16

7.09

6.84

6.8

6.68

6.68

6.41

6.32

5.82

4.59

4.39

3.82

6.34

6.38

Source:IMD World Competitiveness Yearbook 200�

ResilienceoftheEconomy

Figure 2.�>

Source:IMD World Competitiveness Yearbook 200�

Sweden

Switzerland

UK

Norway

U.S.A.

Denmark

Israel

Netherlands

Germany

Australia

Ireland

Canada

France

Italy(18)

Japan(19)

1.22

0.20

1.21

0.92

0.87

0.76

0.74

0.43

0.37

0.35

0.22

0.2

0.07

0.06

0.24

0.25

0.4 0.6 0.8 1 1.2 1.4

NobelPrizeperCapita,2005

7.82

7.80

7.59

7.86

7.93

7.95

8.04

Source:IMD World Competitiveness Yearbook 200�8.0

Iceland

HongKong

Israel

Taiwan

Denemark

Ireland

NewZealand

Australia

U.S.A

Brazil

Canada(19)

U.K(39)

Japan(40)

Germany(57)

France(61)

Figure 2.3>

3.02.01.00.0 7.06.05.04.0

7.60

7.15

6.27

6.26

4.58

3.96

Flexibilityandadaptability9.20

8.65

20 >

This focal point reflects Israel's intellectual assets that support its present activities. These assets facilitate sharing, exchange, flow, growth and transformation of knowledge, from human capital to structural capital. These assets include information systems, laboratories, technology, management attention, and procedures. Key process capital success factors for the creation of know-how in Israel have been taken from various fields such as communications, education, agriculture, management, entrepreneurship, risk-taking, employment, immigration, and absorption. These factors create the base of Israel’s business infrastructure.

Israel has a modern infrastructure:• State-of-the-art telecommunications• World renowned research and educational

institutions• Highly advanced banking financial sector• Large volume of high-tech- and science-based

industry • Supportive business environment • Cutting edge technology and scientific

breakthroughs

Communications and Computerization Technological ReadinessRapidandefficientcommunicationsmakeitpossibletoshortenprocesses,receiveinformationandknowledgeinrealtimeandquicklydevelopproductsandservices.Thankstothedevelopedtechnologicalinfrastructurein

Israel, many companies have an available informationtechnologysystem.AccordingtoIMD,Israel was ranked 3rd out of the 61 countriesthatparticipatedinthesurvey,inInformationTechnologyskills.Israel has the same rank (3rd) in the Global Competitiveness Report in terms of its rate oftechnologicalreadiness.Anotherindicatorthatreferstothetechnologicalreadinessistherateofpersonalcomputerswithinthepopulation.In2004,thisfigureregisteredat73.4personalcomputersper100inhabitants.

Telecom ServicesLiberalization,deregulation,privatization,andadvancedtechnologicaldevelopmentspurredtherapidgrowthofthetelecomservicesinIsrael.Farfromthesinglesupplierofalltelecomservicesafewyearsago(Bezeq), Israel'sresidentsnowenjoygrowingcompetitioninallsegments.ThiscompetitionhashadalargeimpactonIsraelitelecom

Source: IMD World Competitiveness Yearbook 200�

Figure 3.1>

Finland

Iceland

Israel

India

HongKong

Denmark

Austria

Sweden

Singapore

USA

Norway

France(20)

Germany(22)

Japan(24)

UK(35)

1 54 6 72 30

9.20

108 9

9.14

8.98

8.94

8.91

8.89

8.56

8.54

8.34

8.02

7.96

7.89

7.26

8.58

8.64

InformationTechnologySkills

Figure 3.2>

Sweden

Singapore

Israel

Iceland

Switzerland

UK

Australia

USA

Luxembourg

Denmark

Netherland

Canada(17)

Japan(19)

Germany(20)

France(25)

1 2 30 4 65 7

6.01

5.69

5.65

5.6

5.57

5.56

5.47

5.46

5.45

5.28

5.21

5.16

4.81

5.49

5.5

TechnologicalReadiness

Figure 3.3>

SwitzerlandUSA

SwedenIsrael

CanadaAustralia

NetherlandDenmark

SingaporeLuxemburgHongKong

UKJapan(16)

France(20)Germany(21)

Source: The Global Competitiveness Report, 200�-0�

82.3

76.2

76.1

30 7020 605040100 9080

73.4

69.8

68.9

62.2

62.1

60.5

60

54.1

48.7

48.5

65.5

68.5

Personalcomputersper100inhabitants,2004(harddata)

Source: The Global Competitiveness Report 200�-�

< 21

consumptionandhasimprovedthequalityofthetelephoneinfrastructureaswell.

DespitethesmallsizeoftheIsraelimarket,therearethreecellular companies which operate three internationaltelecomservicesandfourbroadcastingoperators(3bycableand1bysatellite),allofwhichcompetesuccessfullyforcustomerpreference.CellularpenetrationinIsraelhasbeensosuccessfulthatIsrael was ranked 3rd in the world in the number of cellular subscribers1057per1,000peopleusemobilephonesinIsrael.

Cyber SecurityCybersecurity isanestablisheddisciplineforcomputersystems used for business management. It focuses onprotecting valuable information stored on computersystemsfromadversarieswhowanttoobtain,corrupt,damage,destroy,orprohibitaccesstoit.Cybersecurityformanufacturingandcontrolsystemsmustalsoincludeprotectionagainstcyberorphysicalattackoncomputer

systemsandtheirsupportsystemsbyadversarieswhowishtodisableormanipulatethemwithintenttocauseharm.In recent years, this discipline has become increasinglyimportantbecauseoftherapidtechnologicaldevelopmentandtransformationofindustrycompaniesintoknowledge-basedorganizations.InIsrael,thereishighawarenessofcybersecurityinorganizationsasshownbytheIMDsurveythatexaminedtowhatextentcorporationsareadequatelyaddressingcyber security. Israel was ranked 8th out of 61 developed countries.

EducationEducationisthemajorsourceforknowledgesharingandcreatinghighqualityhumanresources.Israel’sabilitytoharnesseducationforcreatinginnovativeknowledgeandmotivationtodevelophigh-tech inthefuture isacorecapability,whichprovidesgrowthpotentialandalong-termcompetitiveadvantage.

TheIsraeligovernmentconsiderseducationanimportantmeasure for preparing the new generation for thefuture.Therefore,Israel'stotalexpenditureoneducationasapercentageofGDPhasthehighestrate(8.5%)incomparisonwithotherOECDcountries.AccordingtoIMD‘s2006survey,42%ofIsraelisbetweentheagesof25-34havecompletedatleasttertiaryeducation.In2003,Israelwasranked6tnoutof57countriessurveyedbytheIMDreport.

Quality of Scientific Research Institutions Israel has world-class education institutions. ResearchiscarriedoutinIsrael'ssevenuniversities,fivetechnicalcolleges,andtenspecializedresearchinstitutes.Sixoftheuniversitiesarerankedamongthebestintheworld:TheHebrewUniversityinJerusalemisinthetop

Figure 3.�>

210 3 4 5 6 7 8 9

Israel

Korea

U.S.A.

Denmark

Norway

Sweden

France

Finland

UK

Australia

Austria

Netherlands

Japan

Source: Central Bureau of Statistics, 200�

8.5

7.5

7.5

7.0

6.6

6.3

6.1

5.8

5.5

5.0

4.8

6.1

6.3

NationalExpenditureonEducation(asaPercentageofGDP,2003)

Figure 3.�>

Singapore

Austria

Denmark

Switzerland

Iceland

HongKong

Norway

Israel

Finland

Canada

Germany(17)

U.S.A.(18)

Japan(29)

France(31)

UK(36)

Source: IMD World Competitiveness Yearbook 200�

7.66

7.55

7.5

210

7.49

7.41

7.35

7.17

7.16

6.69

6.68

6.18

6.15

5.82

7.20

7.22

3 4 5 6 7 8 9

CyberSecurityFigure 3.�> CellularSubscribes(per1,000people)

HongKongItaly

IsraelCzechRepublic

SwedenUK

GreeceIceland

LithuaniaPortugal

AustriaGermany

FranceJapanU.S.A.

Source: Human Development Report, 200�

1184.0

1090

1057

4002000

1054.0

1034

1021

996

981

978

864

738

716

617

998

999

600 800 1000 1200 1400

22 >

100.TheTechnionIsraelInstituteofTechnology,TelAvivUniversityandtheWeizmannInstituteofScienceareinthetop200.Bar-IlanUniversityandBenGurionUniversityareinthetop300.In a survey conducted by The Global CompetitivenessReport2006-07,Israel ranked 3rd in quality of scientific research institutions out of 125 countriesthattookpartinthesurvey.ThisdatademonstratesthehighreputationofIsrael'sacademicinstitutionsintheeyesofitscitizens.Furthermore, there is strong collaboration betweenuniversities and industry, resulting in highly developedknowledgetransferbetweencompaniesanduniversitiesasisshowninthechart.AccordingtotheIMDsurvey,Israelwasranked4thoutof61countriesintermsofknowledgetransfer."Thanks to quality education, Israel is one of the most advanced countries in the world. Israel is advancing in high-tech even more than other developed countries"Bill Gates, CEO, Microsoft, World Economic Forum, Davos, January 2000.

Legal Environment for Entrepreneurship The government offers generous incentives forentrepreneurs, including government funding for R&Dprojects, grants for foreign investment in fixed assets,andtaxdefermentforupto10years.Inaddition,Israeloffersinvestorsadvantageousconditionsthatinclude:anactivecapitalmarket,astrongbankingsystem,arobustventurecapitalsector,relaxedcurrencyregulations,andcomprehensive protection of trademarks, patents, andotherintellectualproperty.ThislegalenvironmentanditssupportoftechnologicaldevelopmenthavebeenexaminedinsurveysconductedbyIMD.Israel was ranked 5th out of 61 countriesforhavingalegalenvironmentthatsupports

scientificresearch.Thegovernment’ssupportivepolicytowardentrepreneurshipisalsoevidentbythesimplicityofstartingnewbusinessesor start-up companies in Israel. According to the IMDsurvey,only12daysarerequiredtoformanewbusinessorstart-upcompany.

Figure 3.�>

Canada

Japan

Singapore

Korea

Taiwan

Israel

Norway

Finland

Sweden

Belgium

U.S.A.

Spain

France(15)

UK(20)

Germany(30)

Source: IMD, World Competitiveness Year book 200�

53

52

49

20100

47

43.2

42

40

39

39

38

37

33

22

40

40

30 40 50 60

HigherEducationAchievement,2003

Figure 3.�>

Switzerland

U.S.A.

Israel

UK

Germany

Japan

Finland

Belgium

Sweden

Netherlands

Canada

Singapore

France(30)

Source: The Global Competitiveness Report, 200�-0�

6.3

6

6

210

6

5.8

5.8

5.6

5.5

5.5

5.5

5.1

5.6

5.7

3 4 5 6 7

QualityofScientificInstitutions

Figure 3.10>

SingaporeFinland

DenmarkCanada

IsraelHongKong

AustriaSwitzerland

AustraliaNorway

U.S.A.(16)Japan(17)

France(19)Germany(28)

UK(34)

Source: IMD World Competitiveness Yearbook 200�

8.44

8.09

7.86

210

7.81

7.78

7.65

7.43

7.41

7.03

6.85

6.75

5.98

7.49

7.62

3 4 5 6 7 98

6.39

LegalEnvironmentSupportsScientificResearch

Figure 3.9>

Source: IMD, World Competitiveness Year book 200�

KnowledgeTransfer

FinlandU.S.A.

AustriaIsrael

IcelandSingapore

SwitzerlandSwedenCanada

DenmarkGermany(18)

Japan(21)UK(29)

France(37)

7.20

7.05

6.94

210

6.84

6.84

6.74

6.36

6.11

5.57

5.40

4.63

4.34

6.51

6.68

3 4 5 6 7 8

< 23

withIsraeliorganizationsbeingissued107certifications.Israel improveditsrankfromthe2004surveyinwhichitranked10th.

Agricultural ProductivityTheindustrialandservicesectorsaregaininginsignificancearound the world. In contrast, the significance of theagriculturalsectorisdiminishing.

Thesechangeshavenotbypassed the Israelieconomy.Consequently, Israel is intimatelyawareof theneed toconductintensiveresearchintheagriculturalindustryinordertogeneratenewtechnologicaldevelopmentsinthissectorwithinthenextfewyears.Inaddition,Israelgraduallystartedtoinvestmoreintechnologicalagricultureproductsthaninagricultureasaresultofthecountry’slimitednaturalresources,suchaswaterandfertileland.

Asaresult,therehavebeenimprovementsinproductiontechnology and an increase in farm yields despite thereduced significanceof agriculture in the labormarketandthediminishingavailabilityoffarmland.

The indicator that highlights Israel's impressiveaccomplishment in this field in comparison to othercountriesisitsagriculturaltechnologyandefficiency.

Israel's agricultural productivityintermsoftheGDPperpersonemployedinagriculturestandsat$66,960andranks 3rd compared to other countriesaccordingtotheIMDWorldCompetitivenessYearbookof2006.

Figure 3.11>

CanadaAustralia

U.S.A.NewZealand

SingaporeHongKongSAR

RomaniaUK

IrelandIsrael

FranceItaly(26)

Germany(29)Japan(41)

Source: IMD World Competitiveness Yearbook 200�

2

3

20100

5

6

8

12

13

4.5

4.7

8.1

11

9

30 40 50 60 8070 90

1

4

NumberofDaystoStartaBusiness

USAUK

GermanySwitzerland

JapanFrance

CanadaPakistan

IsraelSwedenAustria

ItalyCzechRepublic

Singapore

Source: The ISO Survey of Certifications 200�

800 1000 1200 1400200 400

1310

973

824

367

211

114

0 600

107

85

71

69

54

50

146

153

ISO13485-MedicalDevices-QualityManagementSystems

Figure 3.12 >

NetherlandsScotland

IsraelIcelandFinland

SwedenUSA

AustraliaLuxembourg

UK(12)Italy(13)

Canada(14)France(19)

Germany(30)Japan(34)

10,000

70,116

66,960

64,219

62,258

59,800

55,859

0

51,452

50,099

44,920

41,184

24,898

20,061

56,841

57,523

80,000 90,00020,000 70,00060,00050,00040,00030,000Source: IMD World Competitiveness Yearbook, 200�

79,815

AgriculturalProductivity(GDPperPersonemployed

inAgriculture(US$))

Figure 3.13 >

ISO – Medical devices Israelisoneof158membercountriesintheISOorganization.Over140organizationshavebeencertifiedwithISO14001onenvironmentalmanagementsystems,anddozensmoreareontheirwaytocertification.

ISOistheworld'slargestdeveloperofvoluntaryinternationalstandardsforbusiness,government,andsociety.TheISOsurveyhasbeen carriedout15 times since itwasfirstinstitutedinJanuary1993.

Theyear2005wasthefirstyearthatthesurveyincludedcertificationforthemedicaldeviceindustry'sISO9001:2000-basedqualityrequirement.Inthe2005survey,Israel ranked within the top ten (9th) for the number of ISO 13485:certificationsissued

2� >

Human capital constitutes a population's total capabilities as reflected in education, knowledge, health, experience, motivation, intuition, entrepreneurship - and expertise, all of which are the key success factors in creating a competitive edge in the present and the future. Human capital provides the resources for the development and cultivation of other areas of intellectual assets. The singular importance of human capital is portrayed by its central position in the model of intellectual capital that we are utilizing here. The human factor is the most important link in the process of value creation. Thus, the success of this process depends on the development and renewal of human resources.Israel has excellent human resources:• Highly educated workforce• A multilingual population with cultural, historic, and business ties to almost every other nation

Highly Educated WorkforceIsraelhasahighlyeducatedworkforcealongwithfirstclasseducationalinstitutions.The quality of Israel's human resources is unmatched;Israel has 140 scientists and technicians per 10,000employees,morethananyotherdevelopedcountry.Israelhas135engineersper10,000employees,which is themost concentrated number of engineers in the world.AccordingtotheGlobalCompetitivenessReportof2006,Israel was ranked first in availability of scientists and engineers.

Equal Opportunities TheIsraelivisionrestsontheprincipleofequalopportunityforallitscitizens–withoutprejudiceonthebasisofsex,raceorreligion–asafundamentalvalue.Acountrythatgrantsequalopportunitytoallitscitizensprovides each citizen with a set of opportunities forexploitinghis/herknowledgeandtalents,therebywiselyoptimizing its inherenthuman resources. The indicatorwechosetouseinordertomeasuretheextentofequalopportunitiesinIsraelincomparisonwithothercountriesisthepercentageofwomeninthelaborforce.Female Labor ForceAfull46.54%ofallemployeesintheIsraelieconomyarewomen,accordingtotheIMDCompetitivenessYearbook.Thisisarelativelyhighratecomparedtoothercountriessuch

IsraelUSA

JapanNetherlandsSwitzerland

CanadaTaiwan

UKS.KoreaIceland

Singapore

135

70

38

0

35

34

28

25

22

19

53

65

Source: Economics and Research Department, Ministry of Finance, 200�

160604020 14012010080

High-SkilledLaborForce(Engineersper10,000Employees)

Figure �.1 >

Figure �.2 >

4Source: The Global Competitiveness Report 200�-0�

5 6 7

IsraelJapanIndia

FinlandFrance

SwitzerlandCzechRepublic

CanadaSweden

GermanySingaporeDenmark

IcelandUSA(18)UK(22)

6.3

5.8

5.9

6.0

6.1

6.2

5.5

5.6

5.4

6.3

6.2

5.8

5.8

5.6

5.5

AvailabilityofScientistsandEngineers

30Source: IMD World Competitiveness Yearbook, 200�

35

EstoniaFinland

SwedenSouthAfrica

DenmarkPortugal

IcelandCanada

IsraelFrance

UK(13)USA(15)

Germany(30)Japan(42)

50.08

6055504540

48.36

47.91

47.72

47.5

47.2

47.05

46.7

46.54

46.37

46.12

46.03

44.57

41.43

Figure �.3 > FemaleLaborForce(asapercentageoftotal,2005)

4.Human Capital

< 2�

astheUS(46.03%),Germany(44.57%),Japan(41.43%).ThisdatashowstheemphasisIsraelplacesonintegratingwomenintothelabormarketaspartofanoverarchingpolicyofequality.

CultureThe contribution of culture to the social climate andeconomyisrecognizedthroughouttheworldashavinggreatimportance.Withapopulationofpeoplehailingfrommorethan100countries, Israeli society is rich in cultural diversity andartistic creativity. Theartsareactivelyencouragedandsupportedby thegovernment.The IsraeliPhilharmonicOrchestraperformsthroughoutthecountryandfrequentlytoursabroad,asdotheJerusalemSymphonyandtheNewIsraelOperaaswellasothermusicalensembles.Israelhasseveralprofessionalballetandmoderndancecompanies,whichdrawupontheculturalheritageofmanyimmigrantgroups.Thereisgreatpublicinterestinthetheater,therepertoireofwhichcoverstheentirerangeofclassicalandcontemporarydrama.

Israelboastsmorethan120 museums,includingtheIsraelMuseuminJerusalem,whichhousestheDeadSeaScrollsalongwithanextensivecollectionofregionalarchaeologicalartifacts,art,andJewishreligiousandfolkexhibits.Israelisareavid newspaper readers,withmore than90% of Israeli adults reading a newspaper at least once a week.MajordailypapersareinHebrew;othersareinArabic,English,French,Polish,Yiddish,Russian,Hungarian,andGerman.

Israel has the second highest publication of new books per capita.SevenmillionIsraelisbuy12million

bookseveryyearmakingthemoneofthehighestconsumersofbooksintheworld.

HealthThe indicators for the health of the population as acomponentofhumancapitalaremeasuredbyavailableresourcesforimprovingIsraelis'health,thecurrentyieldsofthemedicalsystem,andthestatusofthegeneralhealthofthepopulation.

Life ExpectancyThehealthstatusofIsrael'spopulation,asindicatedbylifeexpectancyatbirthandtheannualgrowthrateofthepopulation,putsIsraelinarespectablepositioncomparedtoothercountriesoftheindustrializedwesternworld.Life expectancy in Israel is 80 years,identicaltothelifeexpectancyinCanadaandFrance.ThehighlifeexpectancyinIsraelisaresultofanumberfactorsincluding:thegeneralinfrastructureofhigh-standardhealthservices,thehigh-qualityofmedicalresearchandmedicalresources,anexceptionallywell-developedhospitalsystem, and a high number of physicians and medicalspecialistspercapitainIsrael

Physicians in the Medical System ThemedicalsystemintheStateofIsraelisrichinhumanresources,equipment,andmedicaltechnology.AccordingtotheHumanDevelopmentReport,between1990and2004, the number of physicians in Israel per 100,000peoplewas382,placingIsrael 7th out of 63 developed countries.ThehighlevelofhealthcareandrelativelywiderangeofresourcesbolstersIsrael’spolicyofequalitybyenablingthecountrytoprovideahighlevelofmedicalcareforallitscitizens,includingthepoorpopulation.

Japan

HongKong

Switzerland

Sweden

Italy

Iceland

Australia

Israel

Singapore

Norway

NewZealand

Spain

France

Canada

UK(15)

Germany(15)

USA(24)

Source: The World Health Report 200�

82

81

80

79

78

76 77 78 79 80 81 82 83

79

80

80

80

80

80

80

81

81

81

81

82

LifeExpectancy-2004Figure �.� >

Cuba

Belgium

Estonia

Greece

Italy

Lithuania

Israel

Iceland

Switzerland

CzechRepublic

France

Germany

USA

UK

Japan

Source: Human Development Report, 200�

420

230

198

0 700600500400300200100

256

337

351

361

362

382

397

438

448

449

591

337

Physicians(per100,000people1990-2004)

Figure �.� >

2� >

Renewal and development capital focuses on Israel's

main potential for future growth.

In a dynamic environment, early identification of

driving forces and their translation into business

opportunities through scientific activity will lead

to the country's future prosperity. During the years

of its existence, the State of Israel has made great

contributions to scientific research and international

cooperation.

Scientific research is one of the mainstays of Israel's

growth. Israel is one of the "laboratories" for brilliant

ideas. This is evident by the large number of Israeli

companies (over 100) that are traded on the Nasdaq.

Israel is ranked 2nd after Canada in the number of

companies traded on the American Technology Stock

Exchange.

In order to examine Israel's potential, one must

analyze various indicators that focus on Israel's

investments and yields in technological development

and next-generation products.

The Competitive Edge of Israel:

• Israel has been described as the "Second Silicon

Valley" in the world.

• Israel is one of the largest centers in the world

for start-up enterprises, with more than 2500

start-up companies.

• Israel's cutting-edge industries include: agro

technology, biotechnology, computer-aided

education, and data communications.

Israel’s Scientific Advantage TheStateofIsraelhasbuiltastrongscientificcommunity,

dedicatedtoexcellenceandinnovation.Accordingto2004

Thomson ISI Data, during the years 1993 to 2003, 37

Israeliscientistsappearedonthelistofthebest0.01%

ofscientistsintheworld.

Scientific Publications in the World

TheextentandimpactofactiveresearchinIsraelisdefined

bytwomaincriteria–theproductivityofthescientific

communityandthequalityofresearchascomparedwith

therestoftheworld.Productivityistheextentofactivity

withintheacademiccommunity,onemeasureofwhich

isthenumberofpublicationspercapita.Onemeasureof

qualityofresearchisthenumberoftimesapaperiscited

inotherresearchprojects.

This restson theassumption that themoreapaper is

cited,themoreitisassumedtobeofhighqualityandto

havemadeanimpactinitsfield.

According to the Institute of Science Information (ISI),

Israel was ranked 3rd in the world in the number

of scientific publicationspermillionpeoplebetween

1999and2002.

Figure �.1 >

1000

900

800

700

600

500

400

300

200

100

0

TelAviv100NASDAQ

-4500

-4000

-3500

-3000

-2500

-2000

-1500

-1000

-500

0

1/97 1/98 1/99 1/00 1/01 1/02 1/03 1/04 1/05 1/06 1/07

HighCorrelationbetweenTASEandtheNYSE

Figure �.2 >

SwitzerlandSweden

IsraelDenmark

FinlandNetherlands

IcelandUK

NorwayBelgiumAustria

USAGermany

France(15)Japan(18)

Source: ISI - Institute of Science Information, 2003

1309

712

550

0 140012001000800600400200

731

871

929

972

1025

1065

1093

1332

1334

1598

1757

774

1600 1800 2000

NumberofScientificPublications(permillionpopulation,2002)

< 2�

Field ProductivityRank QualityRank

Mathematics 1 11

ComputerScience 2 3

Physics 2 9

MolecularBiology&Genetics 3 4

Engineering 3 12

ClinicalMedicine 4 22

Chemistry 4 5

Biology&Biochemistry 5 10

Astrophysics&Space 6 2

MaterialsScience 9 1

Ecology 11 24

In some fields, Israeli scientists achieved particularly

outstanding output relative to other countries. As can

beseeninthetablebelow,Israelrankedinthetop10

intermsofbothproductivityandqualityinmostofthe

scientificfields.

With the help of the National Infrastructure Scientific

Program of The Ministry of Science and Technology,

Israelhasdevelopednationalexpertiseinthemostcutting

edgefieldsinscience,suchasnanotechnology,genomics,

stemcellresearch,andtheconvergenceofinformation

technologywithnano-bioresearch.

Anotherimportantindicatorofrenewalanddevelopment

capital is the level of collaboration between local

Israel World Share of Science(1999-2003)

Source:TheS.NeamanInstitute,TheTechnion,2006

universities and industry in research anddevelopment.

Suchcollaborationiscriticalfordevelopingnewinnovative

solutions,ideas,products,andpatents.Accordingtothe

Global Competitiveness Report, Israel scored 5.2 on a

scaleof1to7(1=minimalornonexistent,7=intensive

andongoing)forthelevelofuniversity/industryresearch

collaboration.Israel was ranked 6th out of 125 countries

surveyedbythereport.

PatentsRegistration of Patents

Thanks to the Israeli government’s policy aimed at

encouragingknowledgetransferbetweenacademiaand

industry,Israel’sscientificadvantagehastranslatedinto

agrowingnumberofpatentsregistered intheUSand

Europe.

AccordingtoBusinessDataIsrael(BDI)2003,Israel was

ranked 3rd out of 148 countriesintermsofthenumber

ofpatentsper10,000people.

Accordingtothisresearch,between1999and2003,the

numberofIsraelipatentsregisteredintheUSincreased

bymorethan69%.In1999,thenumberofregistered

patentswasonly748,while thisnumber rose to1265

patentsin2003.

From2002to2003,thenumberofregisteredIsraelipatents

increasedby20%.

Figure �.3>

SwitzerlandFinland

SwedenU.S.A.

GermanyIsrael

TaiwanJapan

SingaporeBelgium

NetherlandsUK

CanadaFrance(29)

Source: The Global Competitiveness Report 200�-0�

1 54 62 30

5.7

5.5

5.5

5.5

5.3

5.2

5.2

4.9

4.9

4.9

4.8

3.8

5.2

5.2

University/industryresearchcollaboration

Figure �.�>

JapanTaiwan

IsraelSwitzerland

SwedenFinland

GermanyFranceBritain

Source: BDI-Business Data Israel 2003

2.98

2.96

2.04

0.500.00

2.02

1.92

1.74

0.68

0.70

1.50

1.00 1.50 2.00 2.50 3.00 3.50 4.00

NumberofpatentsregisteredintheUSduring2003

2� >

IsraelalsoplacedhighintherankingsofEPO(European

Patent Office) patent applications owned by

universities.AnOECDreportrankedIsrael3rd – among

countrieswithmorethan150EPOapplicationsregistered

between2001and2003.

Israel also ranked high (3rd) in ICT-related patents

amongcountrieswithmorethan250patentsfiledunder

thePCTbetween2001and2003,accordingtotheOECD

2006report.

Another important indicator is theutility of patents.

Utilityofpatentsismeasuredbythenumberofpatents

forinventions.AccordingtotheGlobalCompetitiveness

Report,thenumberofIsraelipatentsforinventiongranted

betweenJanuary1andDecember31in2005was137.9per

millionpeople,placingIsrael5thoutof125countries.

Biotechnology Israelishometosomeoftheworld'sleadingbiotechnology

researchcenters,renownedfortheirexcellenceinareas

suchasautoimmunediseases,cancer,andneurology.

IsIsraelabouttoexperienceabreakthroughinthisindustry?

AccordingtoMonitorCompanyReport(2001),thisisindeed

possible.Not surprisingly,growth in the Israelimedical

deviceandbiotechnologyindustrieshasbeentremendous.

Between 150 and 200 new life science companies

are established in Israel every year.

VenturecapitalinvestmentinIsraelilifesciencecompanies

hasalsogrownsignificantly.Closeto$200millionwere

investedinIsraelilifesciencecompaniesthroughout2003

– a two-fold increase in life science investments since

1997.

There are 24 technology incubators in Israel, more

than 20% of them involved in projects in the field of

biotechnology.

Israel is third in the world in terms of its number

of biotechnology start-up companies, according to

theSouthern-California–IsraelChamberofCommerce

(SCICC).Salesfromthebiotechnologysectorgenerated

$1.8-2.3billionin2004.AccordingtotheIsraeliMinistry

ofScience,Israel'sshareoftotalworldbiotechnologysales

Figure �.�>

Belgium

Singapore

Israel

China

Poland

Australia

UK

Brazil

Ireland

SouthAfrica

Canada

U.S.A.

France(24)

Germany(27)

Japan(28)

Source: OECD, 200�

9.3

9.2

8.9

3 72 65410 98

7.4

7.0

7.0

5.3

5.0

4.7

3.7

1.1

0.6

0.5

5.6

5.9

10

EPOpatentapplications(ownedbyuniversities,2001-03)

Figure �.�>

Finland

Ireland

Israel

Japan

Korea

China

U.S.A.

Canada

Sweden

UK

France

Australia

Germany

Source: OECD, 200�

53.8

42.0

41.8

20100

40.5

39.2

38.3

34.9

34.4

31.1

30.2

27.5

35.3

36.8

30 40 50 60

ICT-relatedpatents(asapercentageofnationaltotalPCTfilings,2001-03)

Figure �.�>

U.S.A.Japan

TaiwanFinland

IsraelSwitzerland

SwedenGermany

KoreaCanada

SingaporeIceland

DenmarkUK(17)

France(20)

Source: The Global Competitiveness Report 200�-�

250.3

100500 150 200 250 300

236.9

226.9

138.5

137.9

136.3

124.8

109.0

91

89.6

80.5

66.7

66.3

52.7

47.4

Utilitypatents(permillionpopulation,2005)

< 29

accountwhencomparingIsraeltocountrieswheresecurity-

related research and development is low. Despite this

difficulty,Israel was ranked first out of all developed

countries in terms of national expenditure on civilian

research and developmentasapercentageoftheGDP,

whichinIsraelstandsat4.55%.

Foreign Investment in IsraelIsraeli economic policy has created a climate that is

conducive to venture capital investment by liberalizing

foreigncurrencyandbyofferingsignificantgovernment

incentivesandtaxbreaksforinvestors.

In1991,therewasonlyoneventurecapitalfundinIsrael;

today,thereareover65venturecapitalfundsinvesting

in young companies. Israel-based venture capitals

haveapproximately$2billionat theirdisposal fornew

investments.

Israel is attractive to foreign investors because of its

excellence in technology, particularly in the software,

communications,security,andbiotechsectors.Asisshown

intheIVCdata,mostinvestmentsinIsraelaremadein

thehigh-techsectorswithcommunicationsreceiving35%

andsoftware18%.

"Outside of the US, we invest in only one other

country, that's Israel."

Julien Nguyen, Managing Partner Applied Materials

Ventures, September 2003

isabout2.5%.TheOECDreportranks Israel 7th among

countrieswithmorethan250patentsfiledunderPCT

between2001and2003.

National Expenditure on Civilian Research and DevelopmentOver the past few years, research and development

institutionsandstart-uphigh-techcompanieshavebeen

consideredthepioneersofIsrael’sgrowthandhavecome

tobeviewedasnationalsymbols.Infact,thisprocesshas

beeninthemakingforthepast30years.Inthelastthree

decades,investmentinresearchanddevelopmenthasledto

a30%increaseintheGDP.Research and development

is the key success factor in Israel’s economic growth

and the country's integration into the globalized

world.

Researchanddevelopmentisavital,ongoingprocessin

aknowledge-basedindustry.Thisprocessiscapableof

transformingnewideasintoproductsofhighaddedvalue

withinashortperiodoftime.Thisinnovationdynamichas

thepotentialtoshrinkthebalanceofpaymentsdeficit,thus

acceleratingprogresstowardseconomicindependence.

Thanks to research and development, Israel enjoys a

competitiveedge in theworldmarketdespite its small

size. The degree of innovation indicator is a reflection

ofexpenditureoncivilianresearchanddevelopment.It

doesnot,however,includesecurity-relatedresearchand

developmentbecausethetop-secretnatureofsuchdata

makes it inaccessible. This factor should be taken into

Figure �.�>

Denmark

Canada

Belgium

U.S.A.

NewZealand

Australia

Israel

China

Spain

UK

India

Japan

Switzerland

France(16)

Germany(17)

Source: OECD, 200�

12.7

10.8

10.4

420

9.4

9.2

8.6

7.6

7.5

7.1

6.7

6.2

6.0

5.6

7.8

8.3

6 8 10 12 14

Biotechnologypatents(asapercentageofnationaltotalPCT

filings)

Figure �.9>

210 3 4 5

Israel

Sweden

Finland

Japan

Iceland

U.S.A.

Korea

Denmark

Switzerland

Germany

Taiwan

Austria

France(16)

Canada(17)

UK(18)

Source: IMD World Competitiveness Yearbook 200�

4.55

3.95

3.48

3.2

2.87

2.66

2.57

2.49

2.42

2.26

2.16

2.61

2.63

1.9

1.88

TotalExpenditureonR&D(asapercentageofGDP2004)

30 >

Start-up companies and entrepreneurs with innovative

butriskyprojectsinIsraelcaneasilyfindventurecapital.

According to the survey conducted by the Global

Competitiveness Report on venture capital availability,

Israel was ranked 2nd in venture capital availability,

precededonlybytheUS.

ItistheaimofIsrael'sOfficeoftheChiefScientist(OCS)

oftheMinistryofIndustry,TradeandLabortoleverage

technologyinIsraelasameansofboostingtheeconomy,

supporting innovationandR&D,utilizing Israel'sskilled

resources,enhancingtheknowledgebaseofIsraelihigh-

techindustries,andpromotingcooperationinR&Dboth

locallyandinternationally.Inthelastfewyears,Israelhas

recognizedtheneedtoestablishasystemthatincludes

entrepreneurs,venturecapitalfunds,investorswhofurnish

capital,andacapitalmarketinordertosuccessfullyattract

venturecapital.

Inthefigure,onecanclearlyseethedifferencesbetween

thesituationin2000whenthehigh-techindustryflourished

andthesituationbetween2001and2003-whenthe

amountofcapitalraisedinthehigh-techsectordipped.

ThefigurealsoshowsthattheIsraelieconomyrecovered

in2004,onceagaininducingapositivetrendinthehigh-

techsector.

Therefore, professional investors are keen on investing

fundsinIsraelicompanies,andmulti-nationalcompanies

seektoacquiretechnologiesandcompaniesinIsrael.

Entrepreneurship and Start-Up CompaniesPriortothe1980's,theIsraelieconomywasfocusedaround

traditionalindustries.Sincethe1980's,however,thehigh-

techexplosionhas transformed the Israelieconomy. In

2006, high-tech exports comprised 48% of Israel's

industrialexports.

The government supports more than 200 projects in

government-fundedincubators.Thereare24technological

incubators inoperation.1000projectshavegraduated

from these government incubators in the last decade,

ofwhich57%havereceivedfurtherprivateinvestment.

Thegovernmenthasalsosetup technologyparksand

implementedsoftwaredevelopmentprojects.

Figure �.10>

Source: IVC, Israel Venture Association, 200�

Communications35%

Internet5%

OtherTechnology11%s

Semiconductors8%

LifeSciences

15%s

Sofware18%

VCInvestmentsbySector,2006

Figure �.11>

U.S.A.

Israel

Finland

Netherlands

Norway

UK

Luxemburg

Ireland

Denmark

HongKong

Sweden

Germany(16)

Japan(23)

Canada(4.5)

France(28)

Source: The Global Competitiveness Report, 200�-0�

5.6

5.5

5.4

210

5.4

5.2

5.2

5

5

5.0

4.8

4.5

5.1

5.1

3 4 5 6

4.5

4.2

VentureCapitalavailability

Figure �.12>

3500

3000

2500

2000

1500

1000

500

0

Source: IVC, Israel Venture Association, 200�

1999 2000 2001 2002 2003 2004 2005 2006

1013

3092

1986

1138 1011

14651337

1622

CapitalraisedbyIsraelihigh-techcompanies($m)

< 31

Figure �.13>

Germany

Sweden

Japan

Denmark

Switzerland

Finland

France

Israel

U.S.A.

Austria

Netherlands

UK

Korea

Belgium

Canada(19)

Source: The Global Competitiveness Report, 200�-0�

6.0

5.8

210

5.8

5.7

5.6

5.4

5.4

5.2

5.1

4.8

5.4

5.5

3 4 5 6 7

6.1

5.8

6.0

CapacityforInnovation

Figure �.1�>

Source: IMD World Competitiveness Yearbook, 200�

HongKong

Iceland

Colombia

Austria

Israel

U.S.A.

Taiwan

Estonia

Denmark

Chile

Canada(14)

France(38)

Germany(47)

U.K.(52)

Japan(57)

7.86

7.13

210

6.84

6.83

6.67

6.38

5.63

5.28

5.06

4.75

6.59

6.64

3 4 5 6 7

8.35

7.07

7.19

8 9 10

Enterpreneurship

Israel has the third largest concentration of start-up

companies in the world, preceded only by Silicon

Valley and the metropolitan Boston area.Thesestart-

upcompaniesprovideIsraelitsmainpotentialforfuture

economicgrowth.

ItappearsthatthesecrettothesuccessofIsraelistart-

up companies lies in a quintessential characteristic of

Israeli society– theability tooperateunder conditions

of uncertainty and rapid changes, long a necessity of

lifeinIsrael.Israelientrepreneursareblessedwithtraits

vitaltotheirtrade,suchaswillingnesstotakerisks,the

abilitytomakequickdecisions,theabilitytolearnquickly,

andatremendousdesireforsuccess.Assuch, it isnot

surprising that Israeli companies are known for being

innovative.AccordingtoasurveyconductedbytheGlobal

CompetitivenessReport,Israel was ranked 8th in terms

of its companies’ capacity for innovation.Onhow

companiesobtaintheirtechnology,Israelscored5.6ona

scalefrom1to7(1=exclusivelyfromlicensingorimitating

foreigncompanies,and7=byconductingformalresearch

andpioneeringtheirnewproductsandprocesses).

Israel ranked 5th in entrepreneurship. It is clear

fromtheserankingsthatasubstantialnumberofIsraeli

companieshaveareputationasleadersintheirfields.In

addition,aconsiderablenumberofsmall,andmedium-

sizedIsraelicompanieshavesucceededintheinternational

stockmarket.

32 >

This3rdpublicationoftheIntellectualCapitaloftheStateofIsraelisaspecialedition,becauseitsummarizestheachievementsofthecountryinitscelebrationofits60thyearofindependence!

ThisdocumentpresentsaholisticandorganizedpictureoftheknowledgeandintellectualassetsthatIsraelhasachieved.Itpresentsthehiddenvaluesthatwillleadtoeconomicgrowthandtothecountry'sincreasedintegrationintheglobalmarket.

Overthepastfewdecades,theIsraeligovernmenthasledaveryclearstrategicpolicyofencouraginginnovationandenhancinginternationaltradeco-operationbetweenIsraelandothercountries.Thankstothispolicy,Israelbecameattractivetoforeigninvestorsandmultinationalcorporations.Researchanddevelopmentinstitutions,start-up,andhi-techcompaniesinIsraelhavebeenconsideredpioneersofgrowthandanationalsymbol.Infact,thishasbeenanongoingprocessforthepast30years!Thecountry’sexcellenttechnology,particularlyinthesoftware,communications,security,andbiotechsectors,attractsforeigninvestors,mainlyfromtheUSandfromEurope,whoareawareofthegreateconomicpotentialforinvestinginIsrael.

Thisstudyshowsthat,sinceitsestablishment,Israelhassucceededinaccomplishinggreattechnological achievements.Israelisleadinginvariousfieldssuchasagrotechnology,biotechnology,computer-aidededucation,anddatacommunication.Furthermore,thecountry’scompetitiveedgeisexcellent human capitalintheformofahighlyeducatedworkforcethatiswellintegratedinthehi-techsectorandinresearchandscientificactivity.Inaddition,Israelprovidesa modern infrastructure-asupportivebusinessenvironmentwhichincludesahighlyadvancedbankingandfinancialsectorandlegalprotectionofforeigntrademarksandpatents.

TheprofileofIsraelthatemergesfromthiscomparativestudywithotherdevelopedcountries,isclearlyoneofanationthatisasuperiorpartnerforglobalbusinessandworldwidecollaboration.InaccordancewithIsrael'svisionforthefuture,thisreportpresentsIsrael'sstrategicassetswhichwillenhanceIsrael'sfutureeconomicgrowth.

Summary

3� >

IntroductionIsraelderivesgreatstrengthandtechnologicalexcellencefromitshumancapitalalongwiththeacademicandtechnologicalinfrastructureithasdeveloped.Inordertomaximizetheexploitationofthishumanpotentialandconvertitintoacompetitiveadvantage,thereisapressingneedtoinvestinindustrialresearchanddevelopment.SuchaninvestmenthasbothdirectandancillaryeffectsonthemarketandbecomestheenginethatdrivestheIsraelieconomy.TheOfficeoftheChiefScientist(OCS)withintheMinistryofIndustry,TradeandLaborisresponsibleforexecutingthegovernmentpolicyrelatingtoindustrialR&Dsupport.TheOCSobjectivesaretosupportindustrialR&D,encourageentrepreneursinhigh-techstart-upcompanies,leverageIsrael'shighlycapablescientificandtechnologicallaborforce,facilitatetheacademicindustrialinterfaceforthetransferscientificknow-howandtechnology,and,ingeneral,tostimulatecooperationinstateoftheartR&Datnationalandinternationallevels.TheLawfortheEncouragementofIndustrialResearchandDevelopment–1984constitutesthegeneralmandateoftheOCS.TheOCSalsooffersarangeofadditionalsupportprogramswithintheframeworkofdirectivesfromtheDirector-GeneraloftheMinistryofIndustry,TradeandLabor.The revised lawallows,butdoesnotencourage, the transferofbothknow-howandmanufacturing rights abroadunder clearlydefinedcosts andconditions.

International ActivitiesTheGovernmentofIsrael,throughtheOCS,hassignedagreementsandcreatedfundstogetherwithothergovernmentstoactivelysupportandencourageindustrialR&DcooperationbetweenIsraelicompaniesandindustriesoverseas.MutualbenefitsofinternationalcooperationinindustrialR&Darebasedonthestrengthofeachofthecooperatingcompanies.Itwillusuallyincludeaccesstoknow-how,R&Dinfrastructure,andtechnologiesthatarenototherwisereadilyavailabletotheparticipantsaswellasaccesstonewmarketsandtheneedsofthecaptivemarketofeachindustry.Potentialstrategicpartnerscanbeidentified,resultinginheightenedawarenessofmarketopportunitiesinpartneringcountries,andenhancedidentificationofpotentialtradestrategies.IsraelcanactasatradebridgeforcompanieswishingtoexpandtheiractivitiesintothesemarketsviaitsfreetradeagreementswithNorthAmerica,theEU,andothercountries.Thegovernment'spoliciesandOCSactivitieshavecreatedanenvironmentofgoodinvestmentopportunitiesandsupportthathasattractedhundredsofinternationalcompaniesincludingwell-knownmultinationals,tosetupresearchcentersandenterprisesinIsrael.

< 3�

MATIMOP – Israeli Industry Center For R&DMATIMOPisagovernmentalnon-profitorganizationaimingtopromotethedevelopmentofadvancedtechnologiesinIsraelandtocreatefruitfulinternationalpartnershipsthroughindustrialcooperationandjointventures.MATIMOPactsonbehalfoftheOCSasthenationalagencyinchargeofencouragingandassistingparticipationofIsraelienterprisesininternationalbi-lateralormulti-lateralcooperationprogramsforindustrialR&D.MATIMOPimplementsmostofthebi-Lateralandmulti-LateralR&DcooperationagreementsonbehalfoftheOCSandthusservesasacontactpointforvariousagreements.Assuch,MATIMOPisinconstantcontactwithmostIsraeliHiTechcompaniesandmaintainsadatabaselistingmorethan3,000companiesofallsizes,interestedininternationalcooperation.Onemaysearchthedatabasebytechnology,application,keyword,oralphabeticallyat:http://www.matimop.org.il/newrdinf/company/compsrc.htm

a. Bi-National FundsTwonationscontributeapre-determinedsumtoabi-nationalfundintendedtosupportcooperativeprojects.Intheprovenmodel,eachfundestablishesitsowncriteriaandprocedures,usuallywithinasimilarframework.Aboardofdirectorsisappointedbythetwogovernments,whichissovereigninitsdecisionmaking.Thefundsaremanagedandgrantpaymentsareadministeredbyanon-profitorganization.Itrequiresnoequityinthecompaniessupportedandnointellectualpropertyrightsintheirproducts;nordoesitinterfereinformulatingorrunningtherelationshipsbetweenthepartneringcompanies.BesidesfinancialsupportforR&Dprojects,thefoundationsalsoengageinsearchesforbusinesspartnersinbothcountries,forthepurposesofcollaborationintechnologydevelopmentprojects.

Contact persons:Mr.YairAmitay,ManagingDirectorE-mail:amitay@matimop.org.ilWeb:www.matimop.org.il

Ms.MinaGoldiakInternationalRelationsandCooperationTel:972-3-5118175Fax:972-3-5177655E-mail:minag@matimop.org.il

3� >

a. 1. BIRD Israel-U.S. Binational Industrial R&D FoundationIntroduction:For30years,BIRDhasbeenacatalystforjointResearch&DevelopmentbetweenU.S.andIsraelicompanies.BIRDbringstogetherpromisingIsraelicompanieswiththeirmedium-to-largeU.S.counterparts.BIRDsupportsU.S.companiesintheirsearchforinnovationoutsidethecompanyborders,byexposingthemtoemergingIsraelicompaniesandnoveltechnologies.BIRDisconstantlyseekingnewopportunitiesandmonitoringemergingindustries.Lately,BIRDhasemphasizedtheemergingCleantechsector,specifically,renewableenergyandwatertechnologies.TheapprovaloftheBIRDFoundationBoardofGovernorsisbasedonareviewbytheU.S.NationalInstituteofStandardsandTechnology(NIST)andtheOfficeoftheChiefScientist(OCS)ofIsrael’sMinistryofIndustryandTrade,andLabor.Criteria:Anypairofcompanies,oneIsraeli,oneAmerican,mayjointlyapplyforBIRDsupportsolongastheyhavethecombinedcapabilityandinfrastructuretodefine,develop,manufacture,market,sell,andsupportaninnovativeproductbasedonindustrialR&D.Inmanycases,theIsraelicompanyisinvolvedinthedevelopmentofcutting-edgetechnologies,whiletheAmericancompanyofferslarge-scaleproductdevelopmentandcommercialization.EstablishedIsraelicompaniesmayteamwithU.S.start-upsaswell.The“BIRDModel”hasbeenadaptedtodealwithlongtermbiotechnologyprojects.Details:TheBIRDFoundationoffersconditionalgrantsforjointdevelopmentprojectsonarisk-sharingbasis.TheFoundationfundsupto50%ofeachcompany’sR&Dexpensesassociatedwiththejointproject.Royaltiesaredueonlyifcommercialrevenuesaregeneratedasadirectresultoftheproject.Iftheprojectfails,BIRDclaimsnorepayments.Inthecaseoflonger-termPharma/Biotechprojects,therepaymentsmaybebasedonmilestones.BIRDrequiresnoequityinthecompaniessupportedandnointellectualpropertyrightsintheirproducts,nordoesBIRD interfere informulatingorrunningtherelationshipbetweenthepartneringcompanies,includingtheiragreementsonco-developmentandco-manufacturing.Since its inception30yearsago,BIRDfundedover740projectswith leadingcompanies intheU.S.,including:GeneralElectric,AppliedMaterials,Motorola,Bayer,Johnson&Johnson,Guidant,AmericanRedCross,Bio-Rad,TexasInstruments,Molex,Telcordia,Spansion,SanDisk,EastmanKodak,andmanyothers.BIRDisconsideredagreatsuccessbyboththeU.S.andtheIsraeliestablishmentshavingbeeninstrumentaltothedevelopmentoftheIsraelihi-techsector,andtotheU.S.-Israelitechnologyrelationship.BIRDprojectshaveproducedbillionsofdollarsinsalesandeachyear20to25newprojectsareapprovedinallsectors.The BIRD team also manages TRIDE – a Trinational Fund, bringing together Israel-Jordan and U.S.companiestoperformprojectsfollowingtheBIRDmodel.InadditiontoNISTandOCSreviews,projectsarereviewedbytheJordanianRoyalScientificSociety,throughtheJordanianMinistryofIndustryandTrade.

Contact person:EitanYudilevich,Ph.D.,ExecutiveDirector(BIRDandTRIDE)Tel:972-3-6470710Fax:972-3-6498341E-mail:eitan@birdf.com,eitan@tride-f.comWebsites:www.birdf.com,www.tride-f.com

< 3�

a. 2. CIIRDF – Canada-Israel Industrial R&D FoundationIntroduction:TheCanada-IsraelIndustrialR&DFoundation(CIIRDF)wasestablishedin1994topromoteandsupportcollaborativeR&Dbetweenfirmsinbothcountries.TheFoundationoffersgrantsforjointR&Dprojects,aswellasengaginginsearchesforR&DpartnersinCanadaandIsraelforthepurposesofcollaborationintechnologydevelopmentprojects.Criteria:EligiblecompaniesforCIIRDF’sfundingarefirmsoperatingandheadquarteredinCanadaandIsrael.Atleast30%oftheR&DworkmustbedoneineitherCanadaorIsrael.CIIRDFisalsoentrustedwiththeimplementationoftheOntarioagreementandthefocusofOntarioprojectswillbeonConvergentHealthandCleantectechnologies.Details:CIIRDF’ssupportincludesfundingofbothfeasibilitystudiesandfullprojects.Supportcanreachamaximumof50%oftheeligibleR&DcostsofjointprojectsuptoaceilingofC$800,000.CIIRDFrequiresnoequity in thecompaniessupportedandno intellectualproperty rights in theirproducts. It requiresonlythatthenominalgrantispaidbackinterestfreeonthebasisofroyaltiesifcommercialrevenuesaregeneratedasadirectresultoftheproject.

a. 3. KORIL-RDF - Korea-Israel Industrial R&D Foundation Introduction:TheKorea-Israel IndustrialR&DFoundation(KORIL-RDF)wasjointly incorporatedbytheKoreanandIsraeligovernmentsin2001basedonanagreementconcludedin1998.KORIL-RDF aims to advance Korea-Israel science and technology, business-to-business, and ultimatelyoveralleconomicandtraderelationsbypromoting,facilitating,andsupportingjointindustrialR&DprojectsbetweenKoreanandIsraelihigh-techcompanies.TheFoundationoffersgrantsforjointR&Dprojects,aswellasengaginginsearchesforbusinesspartnersinKoreaandIsrael,forthepurposesofcollaborationintechnologydevelopmentprojects.Criteria:At least30%ofR&Ddevelopmentmustbedone ineitherKoreaor Israel. Joint technologydevelopmentcanrangefromafewweeks,inthecaseofafeasibilitystudy;uptoamaximumofthreeyearsinthecaseofafullscaleproject.Details:FinancialsupportforthejointR&Dprojects isdividedintothreecategories–feasibilitystudy;mini-project,andfullscaleproject.Inthecaseofafull-scaleproject,supportcanreachamaximumof50%oftheallowedjointR&Dexpenditure,uptoaceilingof$1,000,000.

Contact persons:CIIRDF-CanadaDr.HenriRothschild,PresidentTel:613-7241284Fax:613-7241134E-mail:HRothschild@ciirdf.ca

CIIRDF–IsraelMr.LesAbelson,FoundationManagerTel:972-9-7494043Mobile:972-50-2163144E-Mail:les@ciirdf.caWebsite:www.ciirdf.ca

Contact persons:KORIL-RDFKoreaDr.JohngIhlLee,ChiefExecutiveTel:82-2-60098250Fax:82-2-60098254E-Mail:jilee@kotef.or.kr

Mr.HughKim,Program&PlanningCoordinatorKORIL-RDFE-Mail:shkim@kotef.or.krWebsite:www.koril-rdf.or.kr

KORIL-RDFIsraelMs.DeborahSchabes,ManagerTel:972-3-5118183Fax:972-3-5167052E-Mail:dvora@matimop.org.il

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a. �. SIIRD – Singapore-Israel Industrial R&D FoundationIntroduction:SIIRDwasestablishedin1997topromote,facilitate,andsupportjointcommerciallyviableindustrialR&DprojectsbetweenSingaporeanandIsraelihigh-techcompanies.TheEconomicDevelopmentBoard(EDB)ofSingaporeandtheOfficeoftheChiefScientist(OCS),MinistryofIndustry,TradeandLaborofIsraelarethetwoco-operatinggovernmentagenciesresponsibleforsettingupofthisjointnon-profitfoundation.Criteria:Jointtechnologyprojectsmayincludetechnologyandknowledgeapplications,product'sdevelopmenttowardsbeta-sitetestingandinnovativesystemsintegration.EligiblecompaniesforSIIRD’sfundingarefirmsoperatingandheadquarteredinSingaporeandIsraelwithatleast30%oftheR&DworkhandledineitherSingaporeorIsrael.Details:FinancialsupportforthejointR&Dprojectsisdividedintothreecategories–feasibilitystudy,mini-project,andfullscaleproject.Inthecaseofafull-scaleproject,supportcanreachamaximumof50%oftheallowedjointR&Dexpenditures,uptoaceilingof$750,000,andnotmorethan$500,000inoneyear.Jointtechnologydevelopmentispreferablyunder24monthsandgearedtowardscommercializationofthedevelopedtechnologies.

b. Bi-National Cooperation AgreementsIntroduction:TheseagreementsprovideaframeworkforencouragingBi-NationalIndustrialR&DCooperationthroughfinancialsupporttojointR&Dprojects.Thenationalfundingauthoritiesintherespectivecountriesparticipatingintheprojectimplementtheapprovalprocess.Details: InIsrael,theOCSisinchargeoftheoperatingmethodsandapprovalproceduresandMATIMOP,operatingon itsbehalf , is inchargeof implementing theseagreements,by raising theawareness forinternationalcooperationamongIsraelienterprises,byassistingtoidentifyforeignpartnersandbyassistingincreatingandqualifyingjointR&DprojectsbetweenIsraeliandforeigncompanies.MATIMOPisfacilitatingeachyearalargenumberofjointR&DventuresthroughtheEurekaFrameworkandthrough14cooperationagreementswithEuropeancountries,includingDenmark,Finland,Holland,Italy,Slovenia,Belgium,Portugal,France,Spain,Turkey,Germany,Ireland,SwedenandGreece.MATIMOPhasrecentlylaunchedtwonewcooperationprogramswithArgentinaandBrazail.TheseprogramsarethefirstonesgeneratedwithLatin-Americancountries.TheOfficeoftheChiefScientistandMATIMOPhasrecentlydecidedtoputspecialemphasisandtoinvesttheireffortsinpromotingindustrialR&DcollaborationwithAsia,andspecificallywithIndiaandChina,bothattheFederallevelandattheregionallevel.AdditionalBi-Nationalagreementsareavailablewiththefollowingcountries/states:Hong-Kong,Taiwan,Maryland(USA),Victoria(Australia),Ontario(Canada).

Contact persons:Ms.HayaMiller,DeputyManagingDirector(AmericasandAsia-Pacific)E-mail:hmiller@matimop.org.il

Mr.IsraelShamayExecutiveDirectorIndustrialCooperationPrograms(Europe)E-mail:i_shamay@matimop.org.il

Ms.MinaGoldiakInternationalRelationsandCooperationTel:972-3-5118175Fax:972-3-5177655E-mail:minag@matimop.org.il

Contact persons: SIIRD-SingaporeMr.ChanEngChye,GeneralManagerE-Mail:ecchan@edb.gov.sg

Mr.JacksonPhang,ManagerE-Mail:jackson_phang@edb.gov.sg

Ms.RachelChan,ExecutiveE-Mail:rachelc@edb.gov.sg

SIIRD-IsraelMs.ShirleyRefuah-Hasson,Adv.,ManagerTel:972-3-5118170Fax:972-3-5167052,5165090E-Mail:shirleyr@matimop.org.ilWebsite:www.siird.com

< 39

c. The Global Enterprise R&D Cooperation Framework Introduction:TheGlobalEnterpriseR&DCooperationFramework,recentlyestablishedwithintheOCS,isattractingprestigiousmultinationalcorporations(MNC)toforgecooperationdealsforinvestmentinIsraelistartups.PartnershipsbetweentheIsraeligovernmentandmultinationalcompanieshavethepotentialtopropelR&Dprojectsdirectlyontotheworldmarket.Thiscooperationformatoffersalotofadvantagesforbothparties.Israelistartupsthataretargetingamultinationalasaclient,benefitbyinvolvingtheirfuturepartnerinthedevelopmentstagesandtherebyboostingtheirchancesofsuccess.ThecooperationwithmultinationalsalsoopensestablishedexportmarketsfortheIsraelicompany.ThemultinationalsgainachannelviatheOCStoalargenumberofIsraelistartupsandbenefitfromsharingtheriskofR&DinvestmentwiththeOCS.AmongtheMNC‘Sparticipantsintheprogramare:ALCATEL,IBM,MICROSOFT,ORACLE,SUNMICROSYATEMSandDEUTSCHETELECOM.Details:Theprogramtapsintotheindependentworldpowerofmultinationalcorporationswithatleast$1billioninannualsalesandsignificantinvestmentinR&D.Israelicompanies,whoseannualrevenueshasn'texceeded70millionUSDduringthelast3years,arequalifiedtoapplyfortheOCSgrantofupto50%oftheapprovedjointproject'sbudget.TheMNCwillprovidetheIsraelicompanyanequalamountthatmayconsistofcashinvestmentand/orotherassistance:borrowingequipment,discountedsoftwarelicenses,usinglabs,technologicalguidance,businessmentoring,etc.

d. US-Israel Science & Technology CommissionIntroduction:Thisprogramwasajointinitiativelaunchedin1994byUSPresidentBillClintonandthelatePrimeMinisterYitzhakRabin.TheCommissionprovidesauniqueandhighlybeneficialenvironmentforpromotingbi-nationalcooperationatthehighestlevelsofgovernmentandindustry.Togetherwithitsimplementationarm,theU.S.-IsraelScienceandTechnologyFoundation,theCommissionfocusesonareasofbi-nationalstrategicimportance,suchasLifeSciences,HomelandSecurity,andRenewableEnergy.TheCommissionperformsthetaskasacatalystforprogressbyidentifyingandremovingimpedimentsandbuildingthebi-nationalinfrastructureformutuallybeneficialeconomicandtechnologicalcooperation.

Contact persons:Ms.MinaGoldiakInternationalRelationsandCooperationTel:972-3-5118175Fax:972-3-5177655E-mail:minag@matimop.org.il

Mr.JacobFisher,Director-TnufaTel:972-3-5165044Fax:972-3-5165090E-mail:mail@tnufa.org.il

Contact persons:US-IsraelScience&TechnologyFoundation,U.S.AMs.AnnLiebschutzTel:202-419-0430Fax:202-419-0435E-mail:ann@usistf.orgWebsite:www.usistf.org

US-IsraelScience&TechnologyCommission,ISRAELMr.DavidMiron-Wapner,ExecutiveDirectorTel:972-3-5118111Ext.61Fax:972-3-5174617E-mail:david@usistc.org

Ms.EdithEven-Chen,OperationsManagerTel:972-3-5118188Fax:972-3-5174617E-mail:edith@usistc.orgWebsite:www.usistc.org

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e. Multinational Agreements

e. 1. The European Union's Framework Programs for R&D (FP)TheEuropeanUnion'sFrameworkPrograms(FPs)arethemainfinancialtoolsthroughwhichtheEuropeanUnionsupportsresearchanddevelopmentactivitiesthatcoveralmostallscientificdisciplines.Itisthelargestprogramintheworld,bringingtogetherindustryandacademia.Israelistheonlynon-EuropeanassociatedstatefullyparticipatingintheFrameworkprograms.ISERD–TheIsrael-EuropeR&DDirectorateforEUFP,operatingthroughtheOfficeoftheChiefScientistoftheMinistryofIndustry,TradeandLabor,aimstopromotejointIsraeli-EUR&DventureswithintheEU’sR&DFrameworkProgram.ISERDisaninter-ministerialdirectorateestablishedbytheMinistriesofIndustry,Trade&Labour,ScienceandTechnology,ForeignAffairsandFinance,andthePlanningandBudgetCommitteeoftheCouncilforHigherEducation.

ISERD• ActivelyassistsacademicandindustrialentitiesinpreparingandsubmittingtheirEU-RTDprogramproposals.• Provideshelpidentifyingvariouspartnersandbusinessopportunities.• Offersassistance,training,andsupportingservicestointerestedparties.• WorksoninformationdisseminationandraisingawarenesswithinIsrael.• Organizeseventssuchastrainingsessions,seminars,conferences,andnewsletters.

ISERDrepresentsIsraelintheFrameworkProgram’smanagementcommitteesattheEuropeanCommission.ItisalsoresponsibleforthepromotionofIsraeliinterestsintheFrameworkProgram’skeyorganizations,suchasresearchinstitutionsanduniversities,aswellasforpromotingandraisingawarenessoftheprogramamongindustrialandacademiccommunitiesinIsrael.Morethan2000IsraelientitiesparticipatedinvariousR&Dprojects,inthe4th,5th,and6thFrameworkPrograms.ThisispartofthecommitmentbyIsrael’sacademicandbusinesscommunitiestointernationalcooperationasthebestwaytoachievesocial,economic,andscientificprogressandunderstanding.

ThecurrentFrameworkProgram-FP7-isoperatingduringtheyears2007-2013withabudgetof€50billion.

Contact person:Mr.MarcelShaton,GeneralManagerTel:972-3-5118122Fax:972-3-5170020E-mail:marcel@iserd.org.ilWebsite:www.iserd.org.il

< �1

e. 2. EUREKA Introduction:EUREKAisaninitiativebynearly40Europeangovernments(includingIsrael)andtheEUtocreateapan-Europeannetworkformarket-oriented,industrialR&D.Theobjectiveistobringhigh-qualityR&Deffortstothemarketandtousethemultiplyingeffectsofcooperation.EUREKAisthelargestEuropeanplatformforindustrialinnovationprojectsthatarefundedthroughnationalandregionalschemesintheparticipatingcountries. In Israel,theOfficeoftheChiefScientistsupportsIsraelicompaniesparticipatinginEurekaprojects.Details:Eurekaisaverynon-bureaucraticand“SMEfriendly”framework:over40%ofEurekaprojectparticipantsareSME’s.AmongEureka’sactivitiesaretheEurekaClusters,industry-ledthematicinitiativesinaparticularareaofstrategicinterestfortransnational,cooperativeR&D.Clusterprojectsareinitiatedbymajorcompanieswhichfirstdeveloproad-mapstolayoutfuturedirectionsforindustrialR&Dinselectedareas.MostclustersareactiveinICTfieldsandamongtheirinitiatorsarePhilips,Siemens,Alcatel,Thomson,Ericsson,Nokia,FranceTelecom,Telefonica,DeutscheTelekom,andothermarketleaders.IsraelisamongthemostactiveEurekamembersandcurrentlyIsraeliCompaniesparticipateinmorethan10%ofALLEurekaprojectsandinmorethan20%ofALLEurekaClusterprojects.MATIMOPistheNationalCoordinatorforEUREKA-visitwww.matimop.org.il

e. 3. EUROSTARSTheEurostarsProgrammeisthefirstEuropeanfundingandsupportprogramspecificallydedicatedtoR&DperformingSMEsandstart-ups.Eurostarsaimstostimulatethemtoleadinternationalcollaborativeresearchandinnovationprojectsbyeasingaccesstosupportandfunding.Eurostarsprojectscanaddressanytechnologicalarea,butmustbemarket-driven,haveacivilianpurpose,andbeaimedatthedevelopmentofanewproduct,process,orservice.AEurostarsprojectiscollaborative,meaningitmustinvolveatleasttwoparticipants(legalentities)fromtwodifferentEurostarsparticipatingcountries.Inaddition,themainparticipantmustbeaR&D-performingSMEfromoneofthesecountries.EurostarsisjointlyoperatedbytheEUREKAnetworkandtheEuropeanCommissionandprojectsarefundedthroughdedicatednationalfundingschemes,whicharetoppedupbytheEU.

Contact person:Mr.IsraelShamay,ExecutiveDirectorIndustrialCooperationPrograms–EuropeTel:972-3-5118111E-mail:i_Shamay@matimop.org.il

Contact person:Mr.IsraelShamay,ExecutiveDirectorIndustrialCooperationPrograms–EuropeTel:972-3-5118111E-mail:i_Shamay@matimop.org.ilWebsite:http://www.eurostars-eureka.eu

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e. �. GALILEO and SESARIntroduction:Europe’sflagshipProgramfor thedevelopmentofaGlobalSatelliteNavigationSystemcomposedof30satellitesandnearly50groundstationsallovertheworld.TheprogramismanagedbytheEuropeanCommissionandtheEuropeanSpaceAgency.IsraelandChinaaretheonlynon-Europeanfullmembersintheprogram.MATIMOPhasbeennominatedtofacilitatetheIsraeliparticipationinGalileoandisamemberintheGalileoJointUndertaking-visitwww.matimop.org.il,www.gsa.europa.eu

SESAR (the Single European Sky ATM Research Programme) is the first European ATM improvementprogramme,involvingtheAviationPlayers(civilandmilitary,legislators,industry,operators,users,groundandairborne)fordefining,committingto,andimplementingapan-Europeanprogram,andtosupporttheSingleEuropeanSkylegislation.MATIMOPfacilitatestheIsraeliparticipationinSESARvisitwww.matimop.org.il,www.eurocontrol.int/sesar/

e. �. IRC – Innovation Relay Centers Introduction: TheIsraeliInnovationRelayCenter(IRCIsrael)advisesprimarilysmallbusinessesontechnologyandinnovation.Italsohelpsthemidentifytechnologyneeds,suitabletechnologiestomatchtheseneeds,giveassistanceonexploitationandadviseontheEUResearchandTechnologyprograms.EachRelayCentreisanindependentofficebackedbyfundingfromtheEuropeanUnion'sInnovationProgram.Througheachcenter,companiesandinstitutionsestablishlinkstomanyotherrelaycenterslocatedacrossEurope.TheprimarygoalofallInnovationRelayCentersistocreateanexchangeofinformationbetweenorganizationsacrossEurope.Thisgivestheorganizationadirectlinktopartnersandpotentialbuyersofthetechnologiesdeveloped,orpotentialsellersofthetechnologiesthecompanymayneed.

Contact person:Mr.IsraelShamay,ExecutiveDirectorIndustrialCooperationPrograms–EuropeTel:972-3-5118111E-mail:i_Shamay@matimop.org.il

Contact person:Ms.SharonZimmerman,ProjectCoordinatorTel:97235118186Mobile:972545587910E-mail:Sharonz@matimop.org.il

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Activities in Israela. Competitive R&D a. 1. The R&D Fund:Introduction:TheR&DFundisthemainsupportchanneloftheOCS,intermsofbudget,anditisopentoallIsraeliregisteredfirmswishingtoengageintechnologicalresearchanddevelopment.TheproposalsareevaluatedbyexpertswithfinalapprovalbeingthatoftheResearchCommittee,chairedbytheChiefScientist.Theannualbudgetof$250millionisspentonabout800projectsbeingundertakenby500companies.Details:Grantsareprovidedasapercentage(upto50%)ofthetotalapprovedR&Dexpenditures.Thegrantsarea'conditionalloan'–incaseofatechnologicalandcommercialsuccess,itissubjecttoroyalties(3%–5%ofthesales);incaseofnon-commercializationnorepaymentisrequired.TheLawstipulatesthattheroyaltiesreceivedwill,inturn,bereturnedtotheR&DFund-inotherwords,usedtofundfuturegrantstoencourageandsupportindustrialR&D.Criteria:AnapprovedR&Dprogramisonewithtechnologicalnoveltyandeconomicjustification,resultinginthedevelopmentofanewproduct,orprocessorasignificantimprovementtoanexistingproductorprocess.ThereisnolimitationastothescientificfieldoftheR&D,proposalsareacceptedfromtheentiretechnologicalspectrum,suchascommunications,IT,biotechnology,etc.

Contact person:Dr.ShaulFreireich,DeputyDirectorOCSTel:972-2-6662490Fax:972-2-6662928E-mail:shaulf@ocs.moital.gov.ilWebsite:www.moital.gov.il/madan-english

Source: OCS, Ministry of Industry, Trade & Labor, 200�

500.00

450.00

400.00

350.00

300.00

250.00

200.00

150.00

100.00

50.00

0.00

345.6

396.6

348.2

397.3

279.6

400.0428.0 440.4

278.2

430.7

383.0

255.1

OCSAnnualBudjet(million$)

Source: OCS, Ministry of Industry, Trade & Labor, 200�

OCSGrantsbyTechnologicalSector,2006

Communications34% Electro-Optics

9%

Other6%

Electronics9%

LifeSciences

27%

Software12%

Chemicals3%

Source: OCS, Ministry of Industry, Trade & Labor, 200�

160.0

140.0

120.0

100.0

80.0

60.0

40.0

20.0

0.0

1995

199

6

1997

199

8

199

9

200

0

2001

2003

200

4

2005

200

6

2002

117.0

139.0134.2

145.0 146.5

134.0

115.0

56.0

78.7

102.3

132.0

100.0

OCS-AnnualRoyaltiesofSales,millionUS$(derivingfromoscsupportedprojects)

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a. 2. Technological Incubators:Introduction:TheTechnologicalIncubatorsprogramwasintroducedinthebeginningofthe'90s,inviewofthegreatAliyafromtheSovietUnion.Sincethen,andupuntilnow,theprogramhasbeenopentoallbeginningIsraelientrepreneurs.Theincubators,withanannualbudgetof$30million,aresupportiveframeworksthatenablenoviceentrepreneurs,withinnovativeconcepts,totranslatethoseideasintocommercialproductsandtoestablishtheirowncompany.Theincubatorssupporttheearlieststagesoftechnologicalentrepreneurshipthatarenotyetreadyforprivateinvestors,suchastheVCfunds,therebypreventingcommerciallyviabletechnologicalideasfromgoingtowasteduetolackofresources.Thetechnologicalincubatorsprogramprovidesentrepreneurswiththefollowingbenefits:•R&Dgrant•R&Dinfrastructure•Businessguidance•Administrativeassistance•LogisticsupportStatus:Currently,thereare24TechnologicalIncubatorsinIsrael,15ofthemlocatedinperipheralareas,withapproximately200R&Dprojectsbeingcarriedoutatanygivenmoment.In2002,theprograminitiatedaprivatizationprocessandsincethen,manyinvestmentgroupsandVC’s(foreignandlocal)haveinvestedin,andtakenownershipover,theincubators.Details:TheR&Dgrantprovides85%oftheapprovedR&Dexpenditures(budgetof$350,000-$600,000fortwoyears),withtheremaindertobeinvestedbytheincubatoritself.Thegrantsare,ineffect,softloanstobegivenbackbytheincubators,incaseofcommercialsuccessonly.Results:AsofJuly2007,thetotalcumulativeprivateinvestmentingraduateincubatorcompaniessurpassed1.8BillionDollars.Moreover,inrecentyears,incubatorprojectshavesuccessfullybeenabletoraiseinroundAmorethantwicetheinitialinvestmentmadebythegovernment,withintwoyearsoftheiradmittanceintotheincubators.

Contact person:Mrs.RinaPridor,ProgramDirectorTel:972-3-5118127Fax:972-3-5173734E-mail:hamamot@ocs.moital.gov.ilWebsite:www.incubators.org.il

GovernmentInvestmentsVS.PrivateFundsRaisedinIncubatorCompanies

1.800.000

1.600.000

1.400.000

1.200.000

1.000.000

800.000

600.000

400.000

200.000

0

1991

–

1992

–

1993

–

199

4–

1995

–

199

6–

1997

–

199

8–

199

9–

200

0–

2001

–

2002

–

2003

–

200

4–

2005

–

200

6–

GovernmentInvestmentsVS.PrivateFundsRaisedinIncubatorCompanies

Thousanddollars

500000

400000

200000

0

1995

199

6

1997

199

8

199

9

200

0

2001

2003

200

4

2005

200

6

2002

199

4

1993

1992

1991

GovernmentInvestmentsRoundAFundsPrivateFunds

Source: MATIMOP, 200�

Source: MATIMOP, 200�

GovernmentinvestmentsPrivateFunds

< ��

a. 3. Pre-seed Fund – the TNUFA Program:Introduction:TNUFAencouragesandsupportstechnologicalentrepreneurshipandinnovationbyassistingindividual inventors and start-up companies during thepre-seed stage. Support includes assistance inevaluatingtheconcept'stechnologicalandeconomicpotential,patentproposalpreparation,prototypeconstruction,businessplanpreparation,establishingcontactwiththeappropriateindustryrepresentative,andattractinginvestors.Details:Grantsareupto85%ofapprovedexpensesareavailabletoamaximumof$50,000foreachproject.

b. Generic R&Db. 1. The MAGNET Program: Introduction:TheMAGNETprogramisintendedtoprovideacompetitivepositionforIsrael’sindustrywithregardtostate-of-the-arttechnologiesofglobalinterest.Thenewtechnologiesaretobedevelopedinacooperativeventurebetweentheindustryandleadingacademicscientificresearchinstitutionsinthefield,andwillprovidethebasisfornewhigh-techproductsandprocesses.Criteria:TheR&DprogramsentitledtosupportfromtheMAGNETfundmustbeofagenericnature.Genericpre-competitivetechnologiesrefertoabroadspectrumofcommontechnologies,components,materials,design,andmanufacturingmethodsandprocesses,standardsandprotocols-whichhavewide-rangingapplicationsinnumerousindustries.Details: TheMAGNETprogramconsistsofabout12consortiaannually,whileeachofthemisactivatedfor5years.Aconsortiumincludesseveralindustrialcompaniesandacademicinstitutes.Grantsofupto66%oftheapprovedbudgetareavailablewithnoroyaltypaymentsdue.MAGNET'sannualbudgetisabout$50millionperyear.

b. 2. The MAGNETON ProgramTheMAGNETONprogrampromotesthetechnologytransferfromacademiato industryviathemutualcooperationofindividualcompaniesandspecificacademicresearchgroups.Aprojectperiodisupto24monthsandbudgetupto$800,000.Grantsofupto66%oftheapprovedbudgetareavailablewithnoroyaltyrepayments.

Contact person:Mr.JacobFisher,DirectorTel:972-3-5165044Fax:972-3-5165090E-mail:mail@tnufa.org.ilWebsite:www.tnufa.org.il

Contact person:

ForalltheMagnetPrograms(B1-3)Mr.IlanPeled,DirectorTel:972-3-5118110Fax:972-3-5100622E-mail:info@magnet.org.ilWebsite:www.magnet.org.il

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b. 3. The NOFAR ProgramTheNofarprogramaimstobridgethegapbetweenthebasicresearchandtheappliedresearch-aproblemthat characterizesbiotechnologyandnanotechnology.ANofarprojecthas12-15months toachieveaprojectmilestonethatmakessensetoanindustrialcompanywhichcandecidewhethertocarryonorleave.Grantsofupto90%willbegiventobiotechnology&nanotechnologyprojectswiththeremaining10%comingfromindustrialcompanythatisaplayerinthismarket.Themaximumgrantisapproximately$100,000perproject-noroyaltiesarerequired.

b. �. Support for Research InstitutesIntroduction:Thisprogramisdesignedforresearchinstitutionswithclearlinkstoindustry,tostrengthentheirtechnologyinfrastructureanddeveloprelevanttechnologiesandproductsforindustry.Aresearchinstituteentitledtosupportmustbeanindependentlegalentity,employateamofresearcherswithaprovenscientific&technologyabilities,haveequipmentforconductingandtestingR&Dinindustry,andearn30%ofitsrevenuefromindustry.Details:Grantsareupto90%ofapprovedbudgetanduptotwoyears.Atleast10%ofthebudgetmustbeprovidedbyindustry.

Contact person:Dr.ShaulFreireich,DeputyDirectorOCSTel:972-2-6662490Fax:972-2-6662928E-mail:shaulf@ocs.moital.gov.ilWebsite:www.moital.gov.il/madan-english

InthispartweprofiledsomeinnovativeIsraelihigh-techcompaniesfromvariousareas thathavemade significant contributions to theworldofinnovation.Weareproudtointroducethesefourleadingcompanies,twoofwhichhavecontributedtothemedicalsector,thethirdtothecommunicationsectorandthelastprovidessophisticatedwatersolution.

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A new paradigm of surgeryExAblate®2000–ANovelSurgicalSystemdevelopedbyInSightecLtd.RecipientoftheEuropeanInformationSocietyTechnologiesGrandPrizeforInnovationandPotentialtoServeMankindandWallSt.JournalTechnologyInnovationBronzeAwardandAdvancedImaging’s2005SolutionsoftheYear,andRedHerring100Europe2007Award.

TheExAblate2000isthefirstsystemtousethebreakthroughMRgFUStechnologythatcombinesbreakthroughtechnologywhichcombineshighintensityfocusedultrasoundthatheatsanddestroystargetedtissue,non-invasivelyandMagneticResonanceImaging(MRI)whichvisualizespatientanatomy,andcontrolsthetreatmentbymonitoringthetissuetemperatureinrealtime.

ExAblatewasapprovedbytheU.S.FoodandDrugAdministration(FDA)inOctober2004totreatsymptomaticuterinefibroidsandtodateover3000womenhavebeentreatedworldwideforsymptomaticuterinefibroids.InSightechasbegunclinicaltrialstostudythetechnology’suseinotherindicationsincludingbreast,bone,liver,andbraintumors.

Advantages Outpatientprocedure-saveshospitalstaycosts,reducesrisksofinfectionNoionizingradiationLowornoadverseaffectsQuickrecoverytime–returntonormalactivitywithin1–3daysImprovedqualityoflifewithoutdistressingsymptoms

About InSightecInSightecLtd.isaprivatelyheldcompanyownedbyElbitMedicalImaging(EMI),GeneralElectric,MediTechAdvisors, LLC and employees. It was founded in 1999 to develop the breakthrough MR guided FocusedUltrasoundtechnologyandtransformitintothenextgenerationoperatingroom.HeadquarterednearHaifa,Israel,thecompanyhasover135employeesandhasinvestedmorethan$100millioninresearch,development,andclinicalinvestigations.ItsU.S.headquartersarelocatedinDallas,Texas.Formoreinformation,pleasegoto:www.insightec.com

www.insightec.com

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Company OverviewGivenImagingisredefiningthefieldofgastrointestinal(GI)diagnosisbydeveloping,producing,andmarketinginnovative,patient-friendlyproductsfordetectingGIdisorders.GivenImagingpioneeredPillCamcapsuleendoscopyandtodayoffersarangeofPillCamTMvideocapsulesandrelatedproducts.

ThePillCamTMvideocapsuleisadisposable,miniaturevideocameracontainedinacapsulethatcanbeeasilyingestedbythepatient.ThecapsuletransmitshighqualitycolorimagesoftheGItractthatenablephysicianstovisualizethesmallintestineandesophagus.PillCamTMSB,theonlyingestiblediagnostictoolthatallowsdirectvisualizationoftheentiresmallbowel,becameavailablein2001andhasdemonstratedsuperiordiagnosticefficacy.PillCamTMESOwasclearedforuseintheU.S.inNovember2004andprovidesapatient-friendlyalternativeforesophagealimaging.ThePillCamTMCOLONvideocapsuleforvisualizationofthecolonhasbeenclearedformarketingintheEuropeanUnionandmulti-centerclinicaltrialsareunderwayinEuropeandtheU.S.

GivenImagingisledbyaninternationalmanagementteam,withextensiveexperienceinendoscopy,medicaltechnologiesandimaging,globalmarketingandoperations,regulatoryaffairs,andfinance.TheCompany’scorporateheadquarters,researchanddevelopmentlaboratories,andmanufacturingfacilitiesarelocatedinYoqneam,Israel.NorthAmericanheadquartersarelocatedintheUSAinDuluth,GA.EuropeanheadquartersareinHamburg,Germany.AdditionalsalesandmarketingofficesarelocatedinParis,Madrid,SydneyandTokyo,andasecondproductionfacilityislocatedinIreland.GivenImaging’stechnologyiscurrentlymarketedintheUnitedStatesand60othercountries.

GivenImagingispubliclylistedonTheNASDAQStockMarket(GIVN)andontheTelAvivStockExchange.

www.givenimaging.com

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Withmorethan3millionunitsdeployedinover150countries,Alvarionwww.alvarion.comistheworld’sleadingproviderofinnovativewirelessbroadbandnetworksolutionsenablingPersonalBroadbandtoimprovelifestylesandproductivitywithportableandmobiledata,VoIP,videoandotherservices.LeadingthemarketwiththemostwidelydeployedWiMAXsystemintheworld.

AlvarionisleadingthemarkettoOpenWiMAXsolutionswiththemostextensivedeploymentsandprovenproductportfoliointheindustrycoveringthefullrangeoffrequencybandswithbothfixedandmobilesolutions.Alvarion’sproductsenablethedeliveryofpersonalmobilebroadband,businessandresidentialbroadbandaccess,corporateVPNs,tollqualitytelephony,mobilebasestationfeeding,hotspotcoverageextension,communityinterconnection,publicsafetycommunications,andmobilevoiceanddata.

Asawirelessbroadbandpioneer,Alvarionhasbeendrivinganddeliveringinnovationsforover10yearsfromcoretechnologydevelopmentstocreatingandpromotingindustrystandards.LeveragingitskeyrolesintheIEEEandHiperMANstandardscommitteesandexperienceindeployingOFDM-basedsystems,theCompany’sprominentworkintheWiMAXForumisfocusedonincreasingthewidespreadadoptionofstandards-basedproductsinthewirelessbroadbandmarketandleadingtheentireindustrytoOpenWiMAXsolutions.

www.alvarion.com

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IDE Technologies Ltd. is a pioneer and leader in delivering sophisticated water solutions. IDE develops, designs, installs and maintains environmentally-friendly and economical plants for saline water desalination, industrial streams purification and effluent concentration. IDE’s product line also includes a range of heat pumps and ice machines.IDEisownedinequalsharesbyIsraelChemicalLtd.(ICL)andtheDelekGroup,bothmulti-nationalmulti-disciplinecompanies.Sinceitsinceptionin1965,IDEhasinstalledover380plantsofvarioustechnologiesandcapacitiesinnearly40countries.IDE’sstate-of-the-artinstallationshavegainedworldwidereputationinperformance,reliabilityandavailability,resultingexceptionallowcostproductwater!

Main Desalination ProductsMechanical Vapor Compression- MVC -Thesetypesofplantshaveacapacityofupto3,000m3/day,operatingwithanelectricallydrivenmechanicalcompressor,developedandpatentedbyIDE.Theyhavearemarkablerecordofreliableoperationatlowelectricalconsumption.TheMVCplantsareidealforthehighqualitywatersupplytopowerstations,refineries,petrochemicalindustries,ports,municipalities,andtouristresorts.Multi-Effect Distillation (MED) - Thermal Vapor Compression (TVC) - Thesehighlyefficientplantswithsingleunitcapacityofupto25,000m3/dayutilizelow-gradeheatsourcessuchaslow-pressuresteamorindustrialprocessstreamsat65Corabove.Throughcogenerationschemes,MEDunitscanbecoupledtopowerstationsortochemicalandindustrialplants,recoveringtheirsourcesofwasteheatfortheproductionofdesalinatedwater.MEDplantsaretheoptimalsolutionforsupplyingsubstantialquantitiesofwatertoindustrialcomplexes,largemunicipalinstallations,andpowerstations.Reverse Osmosis (RO) Desalination - IDE’sROdesalinationsystemsareavailableforawiderangeofcapacitiesandapplications,includingindustrialfeedandprocesswater,andpotablewaterproduction.BysupplyingtheseawaterROplantsinLarnaca,Cyprus,AshkelonandHadera,Israel,IDEhasclearlymarkeditspositionasthegloballeaderindesalination.Industrial Evaporators - Theseareaspeciallineofbrineevaporators,usedforconcentrationofindustrialeffluents,recoveryandrecyclingofvaluablematerials,andreductionofeffluentdisposalproblems.Thesesystemsutilizeascale-controltechniqueinordertohandleenvironmentalandprocessproblems.Heat Pumps - HeatPumps,suchastheVacuumIceMachine(VIM),EcologicallyFriendlyVacuumIceMachines(ECO-VIM)andChillers(Eco-Chillers),utilizelow-levelsourcesofthermalenergyforspaceheating,coolingandthermalenergystorage,aswellastheproductionofice,atsubstantiallyreducedenergies.Business Concepts – Water Sale (BOOT) -IDEhasalsoenteredintowatersaleprojects(BOOT/BOTscheme),operatinglargeReverseOsmosisPlants.Underthisconcept,thedeveloperfinances,builds,ownsandoperatesthefacilityasaprivateenterpriseforanestablishedtimeperiod,andforanagreedwaterfee.Attheendoftheperiod,thefacilityownershipistransferredtotheclient.InMay2001,IDEinstalledandsuccessfullystartedoperatingthemodernSeawaterReverseOsmosis54,000m³/dayplantinLarnaca,Cyprus,undera10yearwatersaleconcept.

www.ide-tech.com

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