Israel: The R&D Center of World

Israel is known as the ‘startup nation’ and its entrepreneurs are turning their creativity to the FinTech arena, said David Page, Co-Creator and Innovation Partner at Visa Europe Collab. In fact, Israel has the highest concentration of technology companies outside of Silicon Valley with Israel’s technology industry accounting for almost 16% of the country’s GDP.

Israel’s startup ecosystem is one of the most rapidly growing, with nine Israeli companies among KPMG's 100 most promising FinTech companies for 2016, compared with eight in 2015. Two Israeli companies Payoneer and Ourcrowd were rated among the 50 leading established companies, while seven were listed among the emerging FinTech stars of tomorrow.

However, the startup ecosystem wouldn't have a chance if the environment did not allow for its rapid growth and development. Deloitte reports that Israel is the number one is the world in R&D expenditure per capita – the country invested ~4.25% of its GDP into R&D, which is the highest ratio for any country in the world.

Among other important elements of Israel’s success in the global landscape are reported to be the government which is highly supportive of innovation, strong presence of leading multinational companies, strong VC industry (fifth in the world for capital availability), unique society ranked second in the world with regard to the percentage of engineers and scientists in the workforce, and more.

In combination, these factors made Israel one of the strategic centers of the world for sourcing the most talented tech workforce and setting up research centers. Moreover, this summer, a FinTech hub has been set up in IsraelTHE FLOOR, whose partners include four of the world’s leading banks: Banco Santander, HSBC, Intesa Sanpaolo, and RBS whom, together with Intel, introduced their investment plan for its prestigious hub, alongside the international consulting firms Accenture and KPMG. The new platform provides companies with, among other things, access to investment funds, banks and strategic partners, who collectively manage a total of $1 billion globally. Last week, for example, RBS, in cooperation with Google and Intel, was reported to hold a hackathon at the FinTech hub called The Floor at the Tel Aviv Stock Exchange to scout for Israeli financial technologies that will enable the Edinburgh-based retail bank to tap into new technologies and boost services to customers.

There is an interesting reason why Israel earned its central position as a technology research center of the world. As StartupSource’s Mat Goldstein commented at the beginning of November, One area where Canadian universities and research institutions can learn from the Israel experience relates to the way that many Israeli researchers explore innovation with commercialization in mind.

The Israeli tech transfer companies tend to be owned by the host universities, but are run as separate companies based on private sector principles and metrics. As a result, they seem very adept at determining when to incorporate a new company to pursue commercialization or when to license technology to an existing commercial enterprise or partner jointly.

In addition to the above-mentioned institutions, last year, Visa Europe announced the launch of Visa Europe Collab in Israel. Following the launch of Visa Europe Collab in London on May 1, Visa Europe Collab in Israel continues the mission of working with startups, entrepreneurs and partners to develop products and services that aim to transform the payments experience for consumers.

At the beginning of last year, PayPal announced the setup of a new security center in Israel. Located in one of the world's top cybersecurity hubs, this new security center will allow us to tap into the country's cutting-edge technology and top cybersecurity talent," said PayPal Chief Technology Officer James Barrese. The creation of the security center is an extension of the capabilities that PayPal has already developed through the success of its Fraud and Risk Detection Center in Tel Aviv.

Another financial services industry frontrunner, Citibank, also has a footprint in Israel; the company launched its first accelerator program in Tel Aviv in 2013. Over 300 companies have participated in the four-month program. Barclays Innovation Program Rise also has a Tel Aviv chapter along with other locations around the world. Rise delivers numerous programs that facilitate engagement between Barclays and the Rise community in order to solve some of the biggest challenges facing financial services. These programs foster long-term mutually beneficial relationships, designed to scale early prototypes and new business models into live products and services.

Overall, Israel counts over 250 R&D centers set up by multinational companies. Aside from a straightforward setup of an R&D center, some international companies are acquiring Israeli companies to expand portfolios and absorb the most talented workforce – similar to Amazon, which acquired Annapurna Labs, an Israeli-based microelectronics company, for its Amazon Web Services division at the beginning of 2015.

Consumer electronics companies are not falling behind in having a footprint in the ‘startup nation’. In 2011, computer giant Dell inaugurated its first R&D center in Israel, which focused on developing storage technologies and cloud computing solutions, which will be embedded in Dell products worldwide. Established in early 2010, the Dell Israel R&D Center plays a key role in developing file storage technology that is delivered to customers worldwide as part of Dell’s data center and cloud product/solutions portfolio.

Social media tycoon Facebook set up its first-ever R&D center in Israel in 2013 with the acquisition of Onavo, which builds mobile applications that help mobile users reduce data costs.

Among notable examples are also Cisco with its cyber R&D center in Israel, IBM’s R&D Labs in Israel, Microsoft Israel R&D Center, Oracle R&D Center in Petah Tikva, Qualcomm Israel's R&D center in Haifa, SAP Labs, AT&T International Innovation Center in Israel and much more.

One of the reasons research has been an integral part and force of the innovation in the country is that Israeli tech transfer companies have a strong track record of facilitating connections between academic researchers and industry at the earliest stages, leading to early market feedback on the direction of the research. Other professionals have been in support of the idea, adding that Israel has emerged as a leading global hub for technology due in part to its successful incubator ecosystem.