The World’s Innovation Incubator Is Maturing

The Israeli innovation ecosystem continues to punch way above its weight, up there with the U.S. and China – no small feat for a tiny country the size of New Jersey with just over eight million people

Israel ranks 10th on the Bloomberg Innovation Index, which scores countries using seven criteria, including research and development spending and concentration of high-tech public companies. Israel was the only country to beat South Korea in the R&D category, where Israel ranks first in the world in expenditure on R&D as a percentage of GDP.

Global beta site

Innovation is also Israel’s biggest export, with high-tech totaling $45B in 2017, about 45% of Israel’s export total, according to the Israel Export Institute. The World Economic Forum ranks Israel third in the innovation category on its Global Competitive Index.

It had to be like this: The country doesn’t have any significant manufacturing or services sector big enough to service international markets. It has very little natural resources – the new offshore natural gas fields excluded.

Start-Up Nation Central

Instead, Israel is the world’s innovation incubator, a global beta site and test hub for new technologies and digital transformation in everything from life sciences to autonomous vehicles.

There are now over 300 multinational corporations operating R&D centers, innovation labs or incubators, or scouting for early stage start-ups. The rate of this global activity is itself increasing, as is the number of countries where these multinationals come from, including growing representation from China, Japan and India.

1 start-up per 1,400 people

While Israel makes up only 0.11% of the world’s population, it gets around 17% of global cyber investment, 8% of global IoT investment, 7.5% of worldwide private investment in Insurtech, and 7% of global smart farming investment. 

Underpinning much of this innovation are around 6,000 innovation companies – defined by Start-Up Nation Central as a business entity that pursues research and development (R&D) in Israel, offers an original, proprietary technology product which it has developed, and whose founding team includes at least one Israeli citizen.

So, for a country of 8.5 million, that’s around one start-up per 1,400 people! The average number in the whole of Europe, by comparison, is one start-up per 20,000 people. Supporting that entrepreneurial activity are nine public universities, about 400 investors, 26 Foreign Corporate Venture Capital Funds, 250 hubs (co-working spaces, incubators, accelerators), and 16 university and hospital tech transfer offices. About 8% of Israel’s workforce is employed in the high-tech sector, compared with 4% in the U.S.

Jump in R&D centers

There are now some 303 multinationals operating 344 R&D centers in Israel (some have more than one). According to the Central Bureau of Statistics, between 1989 and 2004, multinationals opened R&D centers in Israel at an average rate of 3.6 per year. The rate increased significantly starting from 2004, and over the next 12 years there was an average of 19.5 multinational R&D centers opening in Israel every year.

From 2014 until the first six months of 2018, around 117 multinational corporations from 21 countries opened R&D centers in Israel. That’s an average of 23.4 R&D centers per year! At least 80 of these 117 centers were opened as a result of acquisitions of local start-ups, meaning 68% of them are ‘acquihires.’ The others were opened without a prior acquisition.

The wide majority of multinationals opening innovation centers in Israel over the past five years are US-based companies, 67 in total; with Canadian corporations opening five; British and Chinese setting up seven each; Japanese corporations with three; Swiss, German, French, Indian, Dutch and Russian corporations with two each; and Brazilian, Swedish, Ukrainian, Spanish, Argentinian, Australian and Thai companies with one each.

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