The importance of multinational high-tech companies to Israel’s economy cannot be overstated. Firms like Intel, Google, Apple and Microsoft employ an estimated total of 24,000 people according to the Ethosia high-tech placement agency, and run about 250 development centers, mostly in the center of the country but also in more far-flung locations such as Be’er Sheva, Kiryat Gat, Haifa, Carmiel and Yokne’am. They are managed by talented Israelis, many of whom amassed experience at corporate headquarters overseas.
But the multinationals are also widely panned. Critics claim they are not committed enough to Israel, don’t pay their fair share in taxes, don’t employ enough workers from the periphery and don’t hire outside service providers like lawyers and accountants. A common gripe is that even when they do acquire Israel companies, they transfer the activities abroad or cut back and fire the locals.
Could these companies be getting a bum rap? Quite possibly. Here are some reasons to like them.
1. They bring investment into Israel.
In 2009 multinationals were responsible for NIS 12.4 billion in research and development expenditures in Israel, accounting for a full 63% of the business sector’s investment in non-military R&D, according to the Central Bureau of Statistics. Most of this sum was dedicated to payroll.
Total civilian R&D exports by companies under foreign control amounted to NIS 10.5 billion in 2007, the last year for which figures are available. This accounted for 86% of Israel’s annual R&D exports. That year, global companies employed 27,000 people at their development centers in Israel − some 45% of all people engaged in R&D here.
Intel Israel, the largest employer and private investor in the country’s high-tech sector, is one of the few foreign companies to divulge figures regarding its contribution to the economy. In 2012 the company hired 760 new workers, bringing its workforce in Israel to 8,500. Last year it had NIS 4.6 billion in exports, about 10% of Israel’s total exports and 20% of high-tech exports.
Intel’s procurement from local suppliers totaled $737 million last year, and the company has invested $10.5 billion in local operations since arriving in Israel, including $3.1 billion through government grants − mainly to set up or upgrade its plants. The company’s procurement in Israel totaled $5.2 billion between 2006 and 2012.
2.They boost Israeli technology.
Israelis like describing their country as the world leader in technological innovation, but certain technological fields require resources that are simply out of reach for Israeli companies.
“When I look at technology development investment in Israel like Intel’s 22 nanometers production, I don’t think an Israeli company is capable of pulling it off,” says Muli Eden, president of Intel Israel. “The big advantage of multinational companies is that their business doesn’t rely on the Israeli economy, but rather on the global economy. Some are huge companies with enormous capacity for R&D investment, and they bring the ability to operate at the pinnacle of technology.”
3. They guarantee the sector has plenty of jobs.
The presence of multinationals in Israel is also good for high-tech workers, says Shlomo Markel, vice-president at Broadcom. “As soon as you have multinational companies, there’s a better safety net for workers,” he says. “If a company undergoes a minor crisis and needs to lay off all its workers, other strong multinational companies can absorb them.”
Such instances occured over the past year among semiconductor companies. AMD took on workers laid off by Freescale Semiconductor, Apple absorbed workers fired from Texas Instruments, and Huawei Technologies accepted workers let go by LSI Logic. Freescale, TI and LSI had carried out extensive layoffs due to strategic decisions made at the global level and not specifically aimed at Israel − rather, they were closing certain lines of operation − but the Israeli workers bore the brunt. Markel also notes that large development centers provide livelihoods for service providers in their vicinities: restaurants, drivers, aviation services, lawyers, financial consultants and placement agencies.
4. Their managerial and technological know-how trickles outward.
With the spillover effect multinationals have on their environments, know-how snowballs through local industry and forms a basis for start-ups, inventions and new jobs. Intel Israel is an excellent example: Since its founding in 1974 with an initial staff of five, more than 10,000 employees have moved on to fill other jobs in the Israeli economy, according to an internal study conducted by the company.
Former Intel employees have established an average of 30 companies a year since 2006, generating an average of 250 new jobs a year, and companies formed by Intel veterans have raised $700 million over the past seven years. Some of the companies were sold and became development centers for other multinationals like Broadcom.
Mellanox Technologies, one of the few large Israeli companies established in the past decade, was founded by former Intel workers.
“When raising a cadre of engineers working at the cutting edge of technology, the natural result is for them to diffuse and transfer their way of thinking and behaving to new places,” says Eden.
5. They serve as a popular route for exits.
Most foreign-owned development centers in Israel began as local startups that were taken over by foreign companies, which subsequently expanded them. This happens to be the most popular way to perform an exit in Israel’s high-tech sector.
“The international companies buy Israeli startups in order to gain a foothold in the local high-tech market,” says Eyal Solomon, CEO of Ethosia. “In the eyes of the world, Israel is a leading center of innovation. So even though Israeli engineers earn 5% to 8% more than their counterparts in certain places in the U.S. and tens of percent more than those in Eastern European countries and the Far East, international companies would still rather continue investing in establishing development centers in Israel, too.”
6. They have a welcome effect on Israel's corporate culture.
The foreign companies make notable contributions to Israel’s economy in terms of the standards they set for organizational management and culture.
“As Israelis, we’re very good at being creative, thinking outside the box and taking risks; we’re not saddled with a cultural fear of failure,” says Markel. “We aren’t as good, however, when it c omes to processes. In a multinational company that operates across different cultures with different sets of rules, the corporate culture is more global and can be instructive for how things should run across different environments. This is a complementary aspect, mainly in terms of managerial abilities.
“Experience at multinational companies is producing a new generation of managers with abilities in fields traditionally not associated with Israel, like marketing and sales. When you compare our abilities as Israelis a decade ago versus where we are today, you can see that the quality of managers in Israel has improved,” he adds.