Israel Launches New Program to Lure Foreign Manufacturers

Program aims to lure multinationals that engage in full complement of business operations

Illustration of drug manufacturing.
Adam Reynolds/Bloomberg

The government is launching a program to lure to Israel multinational corporations that agree not only to conduct research and development in the country but also manufacturing. Medtronic, one of the world’s biggest manufacturers of medical devices, may be the first company to join the program.

Around 20,000 people work in some 200 multinational R&D centers in Israel. Intel is a rare foreign company with factories in the country, with a huge semiconductor plant in Kiryat Gat. Intel has 10,000 employees in Israel, and last week it said it plans to hire another 1,500.

The goal of the program is to encourage foreign manufacturers with annual sales of more than $2 billion to establish or expand operations in Israel, said Aharon Ahron, the director of the agency behind the program, the Israel Innovation Authority.

The program wants its partners to run “complete business operations” out of Israel, with an emphasis on creating jobs for Israelis who are not scientists or programmers. The IIA will also encourage companies to register their intellectual property in Israel.

Israel has sought to attract foreign manufacturers with tax benefits under the Law for Encouraging Capital Investments. That strategy has largely failed. Most of the companies benefiting from the program were local, most notably Teva Pharmaceutical Industries. Despite billions of shekels in aid, Teva said this week it planned hundreds of layoffs in Israel.

The new program will be administered by the IIA, the government’s main arm for R&D policy and aid. Under the new program, whose terms were spelled out in last year’s Budget Arrangements Law, any foreign company committing to set up or expand a full spectrum of operations will qualify for up to 50 million shekels ($14 million) of R&D aid over five years, exempt from royalties due the government on profits on products created by the research.

Medtronic, a U.S. company formally headquartered in Ireland, is already in negotiations with the IIA over joining the program and is likely to be the first to do so.

With 85,000 employees in 140 countries, Medtronic has a presence in Israel after a series of acquisitions, including the camera-in-a-pill maker Given Imaging, superDimension, and PolyTouch, which makes hernia mesh placement devices.

Medtronic has 750 employees in Israel and is planning two new R&D centers in the country: one in Jerusalem, for brain-mapping technology, and one in Yokne’am, outside Haifa, that will focus on predictive informatics.

The criteria for selecting multinational companies for the new track include whether the R&D they propose to do in Israel is state of the art in global terms as well as how much employment in R&D and non-R&D operation will generate.