Israel is home to more than 6,500 innovative tech companies and startups, dozens of public and private innovation players, and over 530 multinational corporations (MNCs) from 35 countries. The institutional know-how is there, as is the entrepreneurial and innovative spirit. The question is, how can MNCs tap into the tech network?

The Israeli Innovation Ecosystem Matures

Israel has become a global powerhouse for technological innovation for many reasons; world-class R&D capabilities, effective government programs, military support for company building, and an audacious approach to risk-taking have created a unique and fertile ecosystem.

The numbers speak for themselves. Israel has the highest concentration of startups (one company for every 1,400 people), the highest percentage of R&D spending per GDP at 4.5%, and the highest level of VC investments per capita at $674. However, breaking down the numbers even further shows just how much the Israeli innovation ecosystem has matured over the past few years. The number of Israeli companies raising between $10M and $20M has more than doubled since 2015, which is a testament to the country’s buzzing venture capital activity.

Multinationals Should Pay Attention

This maturation process has not gone unnoticed by MNCs looking to engage with the Israeli innovation ecosystem. Drawing from over 70 interviews and hundreds of data points and examples, The State of Innovation report lays out three possible innovation “identities” that capture the essentials of MNCs’ innovation profiles in Israel: R&D, investments, and partnerships. The report also provides nuances that make any MNC’s innovation profile unique, and classifies the specific activities initiated by MNCs to achieve their objectives.

Are MNCs looking to solve problems or identify solutions? How open is the MNC to working with third parties as innovation partners? Which stage of maturity is preferable when investing in a startup? What is the preferred commercial model in MNC-startup collaborations? These are but a few critical questions MNC innovation executives need to consider as they engage with Israel’s various innovation stakeholders – companies, VCs, academic and research institutions, local hubs, and government agencies.

Large corporations from “traditional” sectors could tap into the Israeli ecosystem more effectively through open innovation models, rather than establishing R&D centers that put them in a losing battle for local engineering talent with the likes of Amazon or Google. MNCs may start finding more success by engaging leading startups as customers instead of as investors, according to the report.

Global Innovators Arrive in Israel for a Journey, not a Destination

By their very nature, innovation models fluctuate due to changes in internal capabilities and external competitive pressures. This is particularly true for MNCs operating in Israel. There are dozens of examples of MNCs that added an investment arm to their localized scouting activities, or R&D-led MNCs that have developed accelerators to engage with a broader set of local innovation stakeholders.

The automotive industry is one example of this trend towards diversification, where dozens of global giants, including Ford, GM, and Daimler, have been locally deploying various combinations of R&D centers, corporate venture capital entities, innovation centers, and partnerships with local facilitators (VCs, hubs, and tech scouters). As a result, despite having a virtually nonexistent local car industry, Israel has become an innovation powerhouse as car makers shift their focus from hardware to software.

Surprise Benefits of Innovating in Israel

According to an Israeli MNC executive, “In the US or UK, when facing a certain problem, we tend to break down the problem and go into detail for a holistic solution. The approach in Israel is very different — iterate, test things, evolve, move on, and remove innovation overheads.” Technological know-how and the talent of Israeli engineers are commonly expressed benefits of Israel’s innovation ecosystem. But there are, at least, two other frequently expressed “surprise” benefits of innovating in Israel. First, the openness and accessibility of local ecosystem stakeholders, and the highly-valued “challenge mindset” corporates discover upon engaging with Israeli entrepreneurs. Second, the Israeli “chutzpah,” which is roughly translated as audacity, is an extremely valuable asset for corporations that often come to Israel carrying decades of risk-averse, highly hierarchical working cultures.

Making Innovation Work

The State of Innovation report offers battle-tested tools for MNCs that have yet to establish significant innovation activities in Israel. These tools are designed to help corporate decision-makers successfully move from taking their first steps in Israel to actually defining the right local operating model that will address their most pressing challenges. These tools include: various governance models MNCs use to execute their local innovation strategies; an innovation capability assessment tool for characterizing “starter” and “advanced” innovation models; a decision tree road-map for MNCs with key milestones en route to successful local innovation outcomes; and an innovation profiler to help define MNCs’ core innovation “identity” within the Israeli ecosystem and build their local innovation portfolio (R&D, incubator, accelerator, innovation lab, strategic partnerships,investments, etc.).

This is an excerpt from OurCrowd’s Q2 Innovation Insider, download it here.

About the Author

Gabriel Levy, Adviser to the CEO, Start-Up Nation Central