Multinational R&D Spending in Israel Declined Because of Economic Crisis

Due to economic crisis, multinationals spent less, but number of R&D jobs actually increased in 2010.

Foreign firms, including Intel, Google and Microsoft, which employ tens of thousands of research and development staff in Israel, have been a mainstay of the Israeli high tech industry. Data released Tuesday by the Central Bureau of Statistics, however, suggest that the presence of the R&D centers here is not totally assured. As the companies contend with the challenges of the global economic crisis, their operations in Israel have felt the pinch.

On the brighter side, the latest year featured in the Bureau's data is 2010, and since then there have also been positive developments. Apple, for example, acquired Israeli company Anobit and has maintained its R&D operations here, and Intel has also announced expansion in Israel.

Nonetheless, due to the importance of research and develop activity for the country, the continued presence of multinationals on the local R&D scene remains an important factor in its continued success.

Multinational high tech companies reduced their research and development spending in Israel in 2010, according to the CBS, with outlays of about NIS 12.9 billion. This represents a decline in real terms of 8% compared to 2009. The figures are particularly striking in light of the increases in spending heare in 2008 to 2009, most of which was also a period of global financial crisis. In 2010, R&D spending by foreign companies in Israel represented 40% of all business-related research and development in the country, but the year before, the figure was 44%.

When it comes to business spending from all sources - both foreign and domestic - in the fields of industry, software, start-ups, technology incubators and research institutes, R&D spending held its own in 2010 in real terms compared to 2009, at about NIS 32.4 billion. Research and development spending as a percentage of gross national product declined, however, from 3.5% in 2009 to 3.4% in 2010.

There was actually an increase in the number of full-time R&D positions, from 50,600 in 2009 to 53,200 in 2010, and a 4% decline in real terms of employing R&D staff here. Fully 38% of all R&D spending in the business sector in Israel in 2010, NIS 12.4 billion, was expended by start-ups, technology incubators and research institutes, a 3.3% increase in real terms from 2009. Much of the increase was due to increased activity at small firms employing no more than 50 people.

It should be noted that R&D extends beyond the software development sector. The CBS found that just 34.4% of all research and development spending in the business sector was in the software field. The more complex the product that a company makes and the more knowledge-based its activity becomes, the more investment in research and development in a range of fields becomes necessary, in an effort to gain a technological advantage over its competition, the CBS said.

Half of R&D budget comes from abroad

When it comes to the sources of R&D financing in Israel, 49% of it came from abroad in 2010. Eighty-six percent of the funding for research and development here was provided by the companies themselves or by a corporate affiliate. Among start-up companies, the amounts funded from abroad is 70%.

Venture capital firms financed 2.7% of Israeli R&D activity, amounting to NIS 900 million in 2010. About 7% was financed by small private funds and so-called angel investors. The year 2010 also saw a 7.6% increase in government R&D financing, to NIS 1.6 billion, led by the Office of the Chief Scientist, which financed most of that increase.