Israel has become known as the world's Startup Nation but it's not all sunshine as productivity problems exist in other sectors including the use of technology.
At a global level, the two most successful high-technology clusters in the past sixty years, Silicon Valley in North California and Israel, have some key unique features.
Israel developed in a semi-arid region from the
1950s and coupled with work in the development of military technology, the
country developed a strong research base.
Up to 220 R&D centres of
multinational corporations employ over 50,000 Israelis.
The Economist said last year that Israel attracts far more venture capital per person than any other country—$170 in 2010 to America's $75. Yet there does not seem to be enough early-stage money to go around. One reason is that there are simply an awful lot of young companies fighting for a share of the pot.
Ernst & Young said in a report this year that the US and Europe accounted for almost 85% of global VC investment, although overall market sentiment was inevitably affected by the continuing slow pace of global economic growth. The slowdown in China’s GDP growth rate led to a decline in VC investment of more than 40% in both the number of deals and total value. However, recent improvements in forward looking indicators of Chinese economic activity point to a more optimistic outlook for 2013.
Israeli venture capital investment fell from $1.9bn in 2010 to $1bn in 2012.
US VC investment activity declined by 15% to US$29.7b in 2012 compared to 2011. Reflecting the global trend, European VC investments declined by 16% year-on-year to US$5.7bn.
Small countries always have a problem with seeking to have companies scale to a significant size rather than be acquired too early by a bigger foreign company.
However, Israel has 66 companies listed on the Nasdaq stock exchange in New York.
The Wall Street Journal said that according to Chemi Peres, managing general partner and co-founder of the Herzliya-based Pitango Venture Capital Ltd., things are changing. "There is [now] a notion of, 'Let's build bigger companies,' and not to sell them at $200m. This is a cultural change. Look at companies like Waze or Trusteer." Trusteer, a security firm, was acquired in August by IBM in a deal that was worth between $700m and $1bn.
Israel vs Singapore
A Google Israel-commissioned
study by Deloitte and Trigger Foresight, a consultancy, and published last summer said that
while Israel leads the way in innovation, its stagnant productivity over the
years has left it lagging. Among the OECD’s 34 member countries, Israel has 24th place in terms of productivity.
The report says the State of Israel is facing many social and economic challenges; these challenges have become greater as a result of demographic and economic trends, leading to deeper inequalities and weakening Israel’s capability to compete in the global arena. The G-7 industrialised countries displayed consistent growth in productivity from the 1970s until the economic crisis of 2008.
Even though Israel, in its early years, narrowed the productivity gap between itself and the OECD countries, it stagnated on par with the OECD average from the 1970s until today.
The report says the strong connection between economic growth and increased productivity and innovation has been proven many times, even awarding Prof. Robert Solow with the Nobel Prize in Economics. However, innovation also necessitates creatively providing useful, efficient and effective solutions to non-economic problems. This is the only way to increase productivity and create growth in advanced economies.
Successfully coping with the challenges and trends the State of Israel is faced with can only be achieved through innovation, the only factor that can guarantee the strength and competitiveness of the Israeli market
In Israel only half of the Small and Medium
Businesses use computers; of the jobs created between 2006 and 2009, 80% came
from businesses with online activities (McKinsey & Company, 2009).
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