israel's competitive advantage

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Promoting Israeli High-Tech Industries 2011 - 2012 Competitive Advantage National Plan רררר רררררMinistry of Finance

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Page 1: Israel's competitive advantage

Promoting Israeli High-Tech Industries

2011 - 2012

Competitive Advantage National Plan

משרד האוצר

Ministry of Finance

Page 2: Israel's competitive advantage

~ ReviewProgram

Highlights

Basic information

Strengths

Weaknesses

~ The Program Tool box

~ Summary

~ Appendices

Page 3: Israel's competitive advantage

“Israel related” concept

Integrated Program

No Silver Bullet

Continuous Process

Program Highlights

Page 4: Israel's competitive advantage

High-Tech

Industries

Software / Hardware

Nanotechnology

Biotechnology

Clean-Tech

Space Industry

Life Sciences Innovation

Centers

Start-ups

Large companies

SecurityIndustries

Semiconductors Communications

Internet

Page 5: Israel's competitive advantage

Basic InformationIsrael’s High-Tech industries

41.2% of total exports in 2009

270,000 employees in 2008.

c. 14% of total employees in Israel’s business sector

15% of Israel’s GDP

Page 6: Israel's competitive advantage

Industry’s Strengths

Page 7: Israel's competitive advantage

Signs of Weaknesses

Page 8: Israel's competitive advantage

THERE IS A SIGNIFICANT RISK OF IMPAIRMENT TO THE

CONTINUED GROWTH OF THE INDUSTRY IN ISRAEL

Page 9: Israel's competitive advantage

~ ReviewProgram

Highlights

Basic information

Strengths

Weaknesses

~ The Program Tool box

~ Summary

~ Appendices

Page 10: Israel's competitive advantage

Tool Box

Covers all phases of industry’s growth

Uses a wide variety of additional tools

Page 11: Israel's competitive advantage

Industry Flow chart

Page 12: Israel's competitive advantage

Industry and Academic Partnership

The Chief Scientist formulated a set of designated tools to enhance the relationships between Academy & Industry (marketing, financing, business training, etc.)

Supporting basic research that has the potential to be commercialized

Expanding existing programs ("Magneton", "Nofar," etc.) Tools 1-2 | Industry and Academic Partnership |Israeli scientists abroad

Page 13: Israel's competitive advantage

13

The Problem:

Loss of human capital as Israeli scientists move abroad (“brain drain”)

Goal : To encourage Israeli scientists and entrepreneurs, that have

the power to influence and promote the high-tech industries in Israel, to return home to Israel

Solution : Tax deductions on income from royalties, stemming from

research abroad, to scientists who have returned to Israel and commercialized the product

Israeli Scientists abroad

Tools 1-2 | Industry and Academic Partnership |Israeli scientists abroad

Page 14: Israel's competitive advantage

Updating the Chief Scientist’s Programs

Changing the R & D Act regarding the transfer and sale of franchise knowledge

Reducing uncertainty for investors

Improving the effectiveness of the Technological Incubators program

Matching the program to the industry's current characteristics

Changing the loan repayment system of the incubator franchises

Creating incentives to the franchises to reward excellence

Tools 3-4 | Update of Chief Scientist Programs |R&D for the global financial industry

Page 15: Israel's competitive advantage

The Problem: Israeli high-tech is marginal in the global financial

industry’s R&D, the biggest consumer of technology worldwide

Solution : Government incentive to multinational financial

entities to establish R&D centers in Israel

Description: New program under the Chief Scientist Office to

encourage R&D centers for global financial technology

Developing R&D Centers for Global Financial Industries

Tools 3-4 | Update of Chief Scientist Programs |R&D for the global financial industry

Page 16: Israel's competitive advantage

16

The Problem: Over dependence on ICT and a lack of investment and

limited knowledge in the bio-tech and Life Science area

Solution: Significant encouragement for the bio-tech industry in Israel

Description: 4 public-private funds for bio tech. Government’s $104m to

be leveraged with a minimum of $304m private funds.

Status: Status: 4 managers were selected for the funds in April

2010.

Development for Bio-Tech Industry

Tools 5-8 |Bio-Tech |Early stage capital |Institutional capital | Growing Large Companies

Page 17: Israel's competitive advantage

The Problem:

Not enough money is raised by SEED-stage companies. SEED-stage companies raised approximately $39 million in 2009, a decrease of about 56% compared to 2008.

Solution:

Allowing investment in an R&D-focused company to be reported as an expense on “day one”

Description:

Deducting this investment as an expense against income from all sources, spread over three years

Incentives for Early Stage investments

Tools 5-8 |Bio-Tech |Early stage capital |Institutional capital | Growing Large Companies

Page 18: Israel's competitive advantage

18

The Problem:

There is a dramatic decline in the ability to raise capital in the Venture Capital industry in Israel from local Pension Funds

The percentage of Israeli institutional investors investing domestically is significantly lower than abroad, 0.2% vs. 2%

Solution:

The State will participate in the investment risk of Israeli institutional investors

Status:

The State has a budgetary commitment of about NIS 200 million for this program

Israeli Institutional Investment

Tools 5-8 |Bio-Tech |Early stage capital |Institutional capital | Growing Large Companies

Page 19: Israel's competitive advantage

19

Encouraging high-tech Israeli companies to acquire small Israeli high-tech companies

Encouraging the creation of clusters

Allowing the amortization of goodwill for tax purposes

Promoting M&A activity

Tools 5-8 |Bio-Tech |Early stage capital |Institutional capital | Growing Large Companies

Page 20: Israel's competitive advantage

20

The Problem:

Low rate of Arab minority and Ultra-orthodox employees in the high-tech industries

Solution:

Incentives for high-tech employers to employ underrepresented communities

Description:

Adjusting the Ministry of Industry’s support programs, which subsidize the cost of salaries for the high-tech industry

Examining other options to encourage employment via

the Chief Scientist’s programsTools 6-9 | Encouraging Underrepresented Communities | Dual R&D | CIO | Science / Technology Education

Minorities & Industry

Page 21: Israel's competitive advantage

21

The government purchases more than a billion shekels worth of technology and services each year from the high-tech industry

The CIO will see all the needs of the government, set strategy and work to create standardized tools and infrastructure

The CIO will have direct responsibility to initiate, lead and operate all horizontal projects for the government

The CIO will create a supportive environment to promote innovation in Israeli industry

Appointment of a Government CIO

Tools 6-9 | Encouraging Underrepresented Communities | Dual R&D | CIO | Science / Technology Education

Page 22: Israel's competitive advantage

22

Strengthening Technological Education

Tools 6-9 | Encouraging Underrepresented Communities | Dual R&D | CIO | Science / Technology Education

Structured combination of high-tech

industry retirees /young people

Retraining program by the Ministry of Education for teaching technologica

l subjects

Shortage of teachers in

technological education Industry

Ministry of Finance

Ministry of Education

Page 23: Israel's competitive advantage

23

Governmental Focus on R & D

The Problem: No preference or system for integrated national R&D efforts The Solution: a body responsible for: recommendations for research focus areas, formulating an

action plan and coordinating between governmental bodies Members of the Body: various government bodies that are in charge of investment

in research and development

Clean-Tech ?

Bio-Tech?

Homeland

Security ?

Tools 10-11 | Bringing Back Israeli Scientists | Governmental Focus on R&D

Page 24: Israel's competitive advantage

~ ReviewProgram Highlights

High-tech Industries

Strengths

Signs of Weakness~ The Program

Tool box

~ Summary

~ Appendices

Page 25: Israel's competitive advantage
Page 26: Israel's competitive advantage

THANK YOU

Page 27: Israel's competitive advantage

~ ReviewProgram Highlights

High-tech Industries

Strengths

Signs of Weakness~ The Program

Tool box

~ Summary

~ Appendices

Page 28: Israel's competitive advantage

2003 2006

30.6% 33.4%

0102030405060708090

100 PhilippinesSingaporeMalaysiaKoreaHong KongIsraelIrelandU.S.UKGermanySweden

Emerging markets

Developed economies

Emerging marketsDeveloped

economies

Exports of High-Tech Industries as a % of Exports

In 2009, the share of exports of high-tech industries in Israel was 41.2%

Page 29: Israel's competitive advantage

ISRAELHong Kong UK

SingaporeKoreaSweden

Germany U.S.Malaysia

IndonesiaPhilippines

Ireland

16.4%

0%

3%

6%

9%

12%

15%

18%

Export of High-tech Industries Average Growth Rate 2004 - 2006

Source: EuroStat, CBS.

Developed countries Emerging markets

Page 30: Israel's competitive advantage

High-Tech Employees by Sub-Branches 2008, thousands

Source: Central Bureau of Statistics, Manpower Survey

85%

15%

Page 31: Israel's competitive advantage

Source: USPTO.

Innovative Patents Registered by Emerging Markets in the U.S. in 2008

(Patents per million people)

Page 32: Israel's competitive advantage

U.S. Patent Applications by Country of Source 2008

Page 33: Israel's competitive advantage

Source: CBS.

University Degrees by Field of Study 1987-2008

0

1,000

2,000

3,000

4,000

5,000

6,000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Mathematics Statistics and ComputerSciencePhysical sciences

Biological sciences

Engineering and architecture

Page 34: Israel's competitive advantage

Israeli Requests for Patents in the U.S. From 1995-2008

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

1,072 1,042 1,097 1,3581,953

2,508 2,707 2,645 2,539 2,6933,157

3,657

4,410 4,550

Page 35: Israel's competitive advantage

Students Studying Abroad Vs. Students Studying Domestically, 2002-

2007

Source: OECD - education at glance.

2002 2003 2004 2005 2006 2007

0%

1%

2%

3%

4%

5%

6%

7%U.SUKGermanySwedenIsrael

Page 36: Israel's competitive advantage

Israeli Students in the U.S. After Receiving a Ph.D.

)% Staying and Returning(

לפי תוכניותיהם בשנה לאחר קבלת התואר*

64%

01020304050607080

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Staying

Returning

Page 37: Israel's competitive advantage

Forecast in Venture Capital Investment Activity in 2010

Source: NVCA.

15% 40% 45%

20% 53% 27%

58% 26% 16%

70% 17% 12%

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

Increase investment Unchanged Reduce investment

Page 38: Israel's competitive advantage

1% companies25% employees

5

9% companies30% employees

90% companies45% employees

Large companies

Over 450

employees >$100 M

Growth companiesSales >$10 M

“Start-Ups”

According to CBS: • There are 36 companies with sales greater

than $100M • There are 12 companies which were

established after 1992 • 4 companies were established after 1995

Source: IVC.

Failure of Large Company Development

Page 39: Israel's competitive advantage

Source: Gartner.

Expenditure on IT by Sector

Page 40: Israel's competitive advantage

THANK YOU