Israel, India look to hi-tech as trade ties expand

Two countries aim to marry Israeli innovation with India’s vast manpower through trade and economic cooperation.

By DAVID ROSENBERG / THE MEDIA LINE
June 2, 2011 15:01
4 minute read.
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Israeli and Indian industry associations signed a memorandum of understating on Wednesday aimed at spurring cross-border innovation and entrepreneurship, as the two countries add high technology to their growing network of trade and economic cooperation.

While bilateral trade has grown exponentially, the agreement between the Confederation of Indian Industry (CII), the country’s biggest trade association, and the Israel High Tech Industries Association, is unusual in that it focuses on technology.  The Indian state of Andhra Pradesh, home to the up-and-coming software center of Hyderbad, is close to signing a pact with Israel’s Matimop, a government agency that facilitates multinational research and development ventures.

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High tech is important to both countries, but their industries are very different. India is focused on software services -- writing code and operating systems for other companies. The National Association of Software & Services Cos (NASSCOM) forecasts will post exports of as much as $70 billion in the year to March 2012. The Israeli industry is much smaller but more diverse, and focuses on developing cutting-edge software, telecommunications and medicine. Exports in 2010 were about $29 billion.

Industry executives see potential to marry Israel’s innovative prowess with India’s huge and talented pool of human resources.

“There’s a complementary software story. Indian firms are entirely process orientated and Israel firms are much more about product,” Naushad Forbes, director of India’s Forbes Marshall and chairman of CII’s Innovation Council, told The Media Line. “If we put those two together, we can be unbeatable worldwide.”

Israel is trying to manage the shifting balance of world economic power. Countries like China and India post faster growth and present more intriguing markets than the older and slower economies of Europe and the US, which have been the biggest markets for Israel’s export-heavy economy. Closer trade and business ties also strengthens Israel’s political standing in the global community.

Starting at $200 million annually when diplomatic relations were established in 1992, trade between Israel and India ballooned to $4.7 billion mark last year when India vaulted into second place among Israel’s export markets. This does not include defense sales which are reportedly over $1 billion annually. In the first quarter of this year the level of trade plummeted to just $336 million, the Israel Export Institute reported on Wednesday, but industry figures and government officials are hopeful that growth will resume.

The two countries are negotiating a free-trade-area agreement (FTA) that will remove barriers to trade. In addition to the agreement with Andhra Pradesh, Israel is negotiating bilateral accords with two other Indian states. In March, Israel’s Finance and Industry Ministries allocated 100 million shekels ($29 million) to promote trade with China and India.

Much of the trade until now has been focused on defense, where increased arms spending has created a natural market for Israel military technology like unmanned pilotless vehicles (UPVs) and early airborne radar systems. These ties will likely deepen because of an Indian requirement that local components account for 30% of any contract, said Forbes. That will require Israeli companies to outsource or set up manufacturing in India.

Ties between Israeli and Indian technology companies are just starting, but they will likely involve more than sales. Companies will benefit mostly from combining Israeli innovation with India’s vast low-cost manpower.

“Israeli companies are already operating in India. We can learn from each other. There is a tremendous opportunity for collaboration and joint ventures,” Shri Sachin Pilot, the Indian minister of state for communications and information technology, said in Jerusalem. 

Andhra Pradesh is already a high tech powerhouse, with software exports last year of $8 billion, equal to half the state’s total. But Ajay Misra, principal secretary to the state’s Information Technology and Communication Department, said India had ambitions to expand out of software into computer and telecommunications hardware. Israeli innovation could help, he said.

“That’s our next step,” he told The Media Line. “We’ve achieved a lot in the software and service sector, but in hardware we haven’t done anything on a big scale.”

In a taste of the kind of tie-ups that may be on the way, last Bangalore-based Tejas Networks, India's largest domestic telecom manufacturing company, is planning to acquire Ethos Networks, an Israel-based high-technology company specializing in carrier Ethernet and network-management products. Tejas now uses the Ethos team as an Israeli R&D center.

Steven Katz, a principal at the Israeli high technology investor, Vertex Venture Capital, said Israeli companies could also benefit from closer ties with India. But, he cautioned, managers will have to be careful about when and how they do it. It is critical that the most innovative parts of any new technology, where Israel’s comparative advantage lies, be developed at home.

“Once you [the company] get to a certain size and you need to build a new software module and you need 20 engineers, that’s when you can perform the development there,” Katz told The Media Line. “But the creativity and ingenuity should stay in Israel.”


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