China-Israel Relations: When the Gate Opens

By DR. ILAN COHN, HOLO ZHENG
November 22, 2016 16:36

Each country has strengths that complement one another.

4 minute read.



Top Israeli tech executives talk

Top Israeli tech executives talk. (photo credit:Courtesy)

Success of a business, in the face of competition, depends on maintaining a competitive edge that may be embodied in superior quality products or services, price advantage, and others. Maintaining a competitive edge is also the driver for success of entire economies. While in years past, a competitive edge was gained through control of and access to food production, supply of raw material, ready availability of shipping solutions, access to and control of energy sources or of capital; in the modern, knowledge-based economy it is intellectual property, which is embodied, among others, in technology and know-how, and which is a product of human intellectual activity and creativity, that provides the key competitive advantage. And indeed, intellectual property, which accounts for about 80% of the value of publicly-traded companies, is the biggest wealth generator of all times. Israel is a classical case study for the importance of these factors for economic development.

Israel, a country relatively poor in natural resources, depends on knowledge, entrepreneurial spirit, resourcefulness and strives for excellence to secure its independence and economic development. In addition to functioning successfully to curb security risks and threats to her existence, these factors combine to convert the Israeli economy into the knowledge-rich and very hi-tech economy, which Israel has become famous for. It is through cutting edge innovations in fields ranging from healthcare, agricultural technology and cleantech to digital printing, communication and computers that Israeli technology has made a lasting mark on the world. Examples of such Israeli innovations are those that lay the foundations of modern cellphone technology, USB flash drives (also known as disk-on-key), instant messaging systems, drip irrigation, voice over i.p., digital printing and cherry tomatoes. Medical technologies is a particular case in point, as it is estimated that about a third of all the ground-breaking medical technologies originate in Israel.

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The Israeli defense establishment, including defense oriented industries, such as the Israeli Aircraft Industries (IAI) or Rafael Armament Authority, and the military, in particular the large intelligence unit known as "8200" and the army's computer unit known as "Mamram",  attracted and continue to attract a considerable amount of fresh talent in Israel, recruited for providing solutions to various military and defense needs. It is not surprising that the young and very talented individuals that eventually emerge out of such military units, are eager to utilize their skills in the business setup; with physicists, engineers and other research scientists emerging out of defense-oriented industries, finding their way eventually into technology-based ventures, founded by them or by peers, that have a civil and non-military focus. It turns out that many of the innovations and technology disciplines that work successfully in solving avionic, missile-targeting, reconnaissance and intelligence, to name but a few, may be successfully applied to civil uses, for example, medical device innovations.

The knowledge, entrepreneurship, resourcefulness and strive for excellence, which were key factors in securing the competitive edge and hence the success of the Israeli economy, find their roots in education and the strong academic sector, which has always enjoyed a very high priority in Jewish and Israeli tradition. Unfortunately, however, the gradual decline in the quality of the Israeli education system, seen in recent years may influence the ability of the Israeli economy to keep ahead and advance. 

The Israeli economy has so far been unsuccessful in converting such innovations into global corporations that manufacture and market their products. And indeed, Israeli ventures traditionally rely on partnerships for development, industrialization and marketing of the products and technologies they developed. Such partnerships may be in the form of mergers or acquisitions, joint ventures, licensing deals and others.

While traditionally the sought-after partners were US and European corporations, in the recent decade the warming of Israeli-Chinese business relations, opened the gate to the Chinese market and Chinese business community, for Israeli innovators. Motivated, among others, by the government policy aimed at converting China into a knowledge- and intellectual property-based economy, China is undergoing a dramatic change where innovation and technology have become the key economic players. This includes opening new innovation and industrialization hubs, granting economic incentives for innovative ventures, and others.

Israeli innovators are highly resourceful in their ability to identify needs and innovate to fulfill such needs. However, they are less proficient in up-scaling manufacture, industrialization and marketing. Technology-based partnership (of various kinds) between Chinese corporations and Israeli, technology-based ventures can fill these gaps for Israeli ventures, provide Chinese corporations with access to new innovations and make use of many economic incentives available in China. The growing interest in both countries in the creation of such partnerships will undoubtedly yield a dramatic growth of trade and flow of finances between the two countries, for the benefit of both.

Dr. Ilan Cohn is Senior Partner at Reinhold Cohn Group. Holo Zheng is GM at Techcode Israel: China Innovation Center.
Both Reinhold Cohn Group and Techcode Israel are members of IATI (Israel Advanced Technology Industries).

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