I wrote last week that “Israel is no longer number the only country in the game of start up nations”. After another eventful seven days for the Israeli economy, I can only confirm that statement. For all the good news, for all the new partnerships being formed with overseas investors, there is something very worrying just under the surface.

Let’s start with four pieces of positive soundbites.

A) Last week, I attended the launch ceremony of the Mass Challenge in Jerusalem. Nearly 50 start ups from differing sectors will be housed together in an incubator for about 12 weeks. Mentors and investors will be brought in to visit and to encourage.

Similarly, a new US$100 m biotech fund has just been launched to invest in Israeli pharma and medical kits. And a US15 million agritech incubator has been set up by a group of local and overseas investors. Really vibrant stuff!

B) Cisco has made another yet another purchase in Israel. Cloudlock was started in 2007 in Tel Aviv and has grown to 150 workers. To date, US$38 million had been invested in its efforts to promote security via the cloud. Jon Chambers has announced that he has agreed to a valuation of US$293 to include it in the Cisco empire.

C) MIS is located near Nazereth and makes dental implants, not a very sexy subject to many a folk. However, its 420 workers caught the eye of the NASDAQ company DENTSPLY, which has laid out US$375 m in cash for its sales base in over 50 countries.

D) And in a more general note, the good word on Israeli Fintech continues to seep out. According to KPMG, around about US$ 5.7 billion has been invested globally into the sector in the first half of 2016. Roughly 12% of that can be attributed to Israeli tech. Impressive.

But, and there is a but, the future remains grey. A recent OECD survey of 34 countries ranked Israel as 28th and 29th respectively, when it comes to reading and maths. Japan was placed first. What can of base is that for the next generation of entrepreneurs?

Something needs to change, and fast, when considering the future competitive strengths of the ‘start up nation’.

 

A client of mine in Jerusalem has just been accepted to an accelerator. Earlier this week, I was discussing with her what kind of business mentor or coach she would like to receive from the set up.

Her response was straight to the point. To summarise: obviously somebody who knows a great deal about her area of commerce and has similar experiences to share. Right? And she expected my immediate approval.

I disagreed. Knowing better than to give an example of my experiences, I referred to David Clutterbuck’s book “Everyone needs a mentor“. In what could be an example of what he describes as ‘reverse mentoring’, Clutterbuck described a situation where golf and tennis coaches swopped professions.

The result was incredible. Although not proficient in the respective sports, the coaches were able to identify new weaknesses that the ‘regular’ trainers had not spotted or handled. The players were delighted.

I have to admit that the face of my client remained skeptical. However, with some ironic timing, I came across a new blog from the Harvard Business Review on how Cisco has successfully encouraged innovation in recent years.  Stephen Monterde, Director of Corporate Development at Cisco Systems, explained that: –

At Cisco, we are learning to answer these questions – responding to technological challenges – through three initiatives designed to broaden our knowledge base by bringing multiple perspectives together: embracing diversity within our walls; reaching out across industries; and building partnerships with former (and current) competitors.

To summarise a fascinatingarticle, what this multinational achieves is the creation of a ‘sandpit’ of human resources, ensuring that new ideas are exposed to the views of all departments. It is this diversity, that deliberately crosses boundaries, that drives Cisco’s constantly evolving commercial successes.

And if Cisco employees can listen to others ‘outside the comfort zone’, I think there is a lesson here for all of us.

It is 40 years since Intel first opened up in Israel. Its fabs have turned out microprocessors like the Centrino that can be found in homes and offices around the globe, including the Middle East. Factor in the investments made by Cisco (through NDS), Goggle (via Waze) or even the multiple purchases of IBM and you realize how billions of people are benefitting from Holy Land tech – wittingly or not, willingly or not.

News of the past week reveals just how the world continues to lap up these technological talents.

1) The Hebrew press is reporting that the CEO of Technicolor, Frederic Rose, sees Israel as its next new fishing ground for resources. The plans include a meet-up with 100 local media companies.

2) Several stages further ahead is defence conglomerate Lockheed Martin. Together with data storage equipment maker EMC, “they plan to jointly invest in advanced technology projects at a tech park in Beersheba….. to explore research and development projects in cloud computing, data analytics and cyber technologies.” This is expected to deliver hundreds of new jobs to the desert economy of the south.

3) Facebook has made it clear for sometime that it intends to be active in Israel. By April 2014, it will have established an r&d operations near the Diamond Exchange near Tel Aviv. Part of its sales operation will be transferred from Ireland to Israel.

4) Mexico’s Carlos Slim, considered the world’s wealthiest tycoon, has not allowed himself to miss out. He has two sealed two purchases over the past twelve months. worth tens of millions. His son is expected in Israel over the next few days to review the next potential crop.

5) The bottom line is that 2013 was the best year for a decade for investment in Israeli high-tech, as US$2.3 billion flowed in. Of that, 76% can be attributed to overseas capital, easily passing the previous high of 73%.

For a country of only 8 million people, Israel certainly provides a big bang for its buck. It is difficult to imagine a world without all these technologies.

The Methodist Church in the UK has created an on-line survey to ask for opinions on BDS – Boycott, Divestment and Sanctions – a global economic, academic and cultural campaign to apply political pressure on Israel.

In a nutshell, supporters of BDS argue that Israel’s occupation of the West Bank since 1967 is brutal and contradicts international law. It must be stopped.

Israel’s advocates believe that this is a politically-correct truth, wrapped up in a lie. It is George Orwell’s newspeak at its most triumphant. After all: –

I am not an expert of Methodism, which arose in the 18th Century as a response to perceived hypocrisy in the established Church of England. I do believe that any true religion does not look to generate separation, distrust and hatred. Rather it should be seeking to invest in co-existence at grass roots level. In the past few years, Israel has made the following advances towards working with Palestinians: –

  • Contrary to BDS circulars, Israel helps to provide extra water and sewage solutions to the Arabs, inside and outside the Palestinian territories.
  • President Peres recently invited the Barcelona football team to Israel, and great efforts were made to ensure that the players visited Ramallah.
  • A new scheme has been launched to ensure that 500 Arab teachers are employed in Israeli schools
  • Increasing numbers of Arabs – Christian, Muslim, female – can be found serving in the Israeli army
  • The ‘Save A Child’s Heart’ campaign in Tel Aviv has saved the lives of hundreds of Palestinian children with cardiac conditions over the past two decades. (Actually, the team is currently involved in a unique project in Tanzania. Should that too be boycotted?)

All that is left for me to understand is what precisely the proponents of the boycott intend to achieve? Yes, they can put pressure on celebs like Stephen Hawkings not to visit Jerusalem, even though the very tools keeping the professor alive are powered by Israeli tech. Please note that Microsoft, Siemens, HP, General Motors, Facebook, R&D centres operating in Israel and turning out services for the whole world. Just check out on the internet re the levels of foreign investment in Israel. (However, I suggest caution before using Google, as it is co-owned by an Israeli.)

PWC estimates that Israeli exists in 2012 were valued at US$5.5 billion (mainly from overseas) and this figure will be topped in 2013. This year has already seen:

  • IBM purchase Trusteer, which protects millions of bank accounts in the UK and America from computer theft.
  • Communications giant, Cisco, add intucell to ten other Israeli acquisitions. These applications are found next to the television set and in the phones of billions globally.
  • Facebook buy onavo to enhance its mobile app capability.

Should these deals be reversed, and why? Warren Buffet, French retailer Kiabi, health giant Prolor Biotech and so many more have upped their positions in Israel during 2013, effectively benefitting millions internationally.

So what is BDS really trying to say? If I refer back to the position of the Israeli advocates, they point out that one of the founders of BDS, Omar Barghouti, advocates for the total destruction of the Jewish state of Israel, even though he studied at the University of Tel Aviv.

I suppose this same Barghouti would boycott all the theories and the science of Albert Einstein, because the estate of this Nobel Laureate has been dedicated in its entirety to the Hebrew University of Jerusalem. This leaves many to believe that BDS is another name for the theory of relative hatred.

Yesterday’s meeting of the Jerusalem Business Networking Forum turned out to be a fascinating event, evaluating the role of CISCO in the Israeli economy.

For dummies like me, what CISCO has been doing for the past three decades is helping to ensure that our internet services go faster. Israel, as a start up nation, has been at the forefront of the communications and high tech revolution in this period. Ergo, Cisco opened up an office in Israel back in 1995.

The two speakers gave an overview of CISCO – how it expands via natural growth, aquisition and partnerships – and then why it purchased for US$5 billion NDS, a Jerusalem-based former start up. Effectively, the NDS story was a case study for why CISCO is so ‘into’ the Israeli market. The facts make for fascinating reading.

Of CISCO’s 116 acquisitions over the decades, 11 have been in Israel. When the company purchased Intucell earlier this year, CISCO crossed the 2,000 employee mark in the Holy Land. It has made 21 additional investments and holds positions in two local VCs, including Sequoia Capital. By the end of 2013, it will embark on two further VC projects and have opened a center of excellence for cyber security.

The match with NDS – now formerly part of CISCO – came about through a market need, clear symmetry and a leading technology, developed via chutzpah and former military skills. Here is the interesting thing: NDS provides encryption and security technologies, which puts TV into your homes. Summing up their various product lines, NDS services can be found in about 450 million homes around the globe. Stunning.

It is difficult for me to consider to find a comparable technology, although I did recall Trusteer, another former Israeli start up that was purchased earlier this month by IBM for a sum that may approach the US$1 billion level. “Seven of the top 10 US banks and nine of the top 10 UK banks use Trusteer’s solutions to help secure customer accounts against financial fraud and cyber attacks.” That is a lot of people and financial wealth that are benefitting from Israeli brain power.

Where CISCO will move on to in the Israeli economy, I am not sure. However, just look what they have attained through NDS, a company where for religious reasons many of the employees do not even possess a television !

Unemployment jumps to 7.3%. Housing starts down. OECD marginally lowers growth forecast. Not the greatest series of economic news that Israel has seen in recent weeks.

And yet right beneath those one-off headline items is a major piece of commercial joy that bodes well for the future of the country. To paraphrase statements from Bill O’Neill, Merrill Lynch’s Wealth Management chief investment officer for Europe, Middle East and Africa; the Israeli economy is in good shape.

It is not just that growth of 3% still puts it towards the top of the OECD pack. Nor that unemployment is remains well below many other countries. And we can already see multinationals looking to invest in Israel’s new offshore gas reserves.

Look at the level of exits in Israel during 2012. This is one of the ways that large overseas financial players judge the strength of the country’s performance. In the previous peak year of 2006, the figure reached $10.1 billion. This year, at a time when money is supposed to be tight on the global scene, $9.3 bilion has already been counted up. (Figures released at an MIT seminar in Tel Aviv on Wednesday). Cisco’s purchase of NDS is responsible alone for $5 billion.

The story does not end there. This morning’s press reveals that  “NCR Corp, a supplier of automated-teller machines and payment systems, agreed to buy Retalix Ltd, Israel, for about $650 million, gaining software and services used in supermarkets.”

I wonder who else has yet to complete their Christmas shopping amongst the Holy Land’s high tech treasure trove.

;lkch;lad

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