Israeli entrepreneurship and the developing world

As we enter 2013, it seems like a fitting time to question what lies in store for the “Start-Up Nation” in the coming years. A long-standing debate exists on the source of entrepreneurial opportunities.

With Israel’s strong ties to America and Europe, it is unsurprising that most of the opportunities Israelis pursue involve developing gizmos and gadgets that answer recognized needs in the Western world. In this respect Israel the “Start-Up Nation” is certainly at the forefront of the types of innovative technologies that improve Western consumers’ lives by making them simpler and more convenient or entertaining.

However, Europe and North America comprise only 15 percent of the world’s population and its share in global GDP is constantly shrinking. Sub-Saharan Africa and Asia, on the other hand, are seen as strategically significant and rapidly growing new markets with annual average real GDP growth rates of 5.7% and 7.9%, respectively, compared to the OECD average of 1.65% in the past decade.

These countries are also places where a multitude of crucial basic needs – ranging from food and water to basic sanitation and medical care – remain largely unfulfilled.

In some parts of the world there is huge competition in the development of smartphone applications to read the calorie count of a QR code, while in other regions people are still not receiving enough calories to meet their daily needs. On a global level, it seems that Adam Smith’s “invisible hand” does not seem to reach far enough.

However, finding solutions to the challenges faced by world’s four billion poorest people need not necessarily call for ethically driven interventions such as increased foreign aid or charitable donations that often breed dependency. Rather, it is becoming more and more recognized that some of the solutions may lie in imparting the information and knowledge that could allow entrepreneurs to overcome these market failures and turn the world’s vast needs into profitable and mutually beneficial opportunities.

INCREASINGLY, BUSINESSES are becoming aware of such opportunities and shifting their focus to emerging markets, which are seen to be the source of future growth opportunities. There are innumerable examples of successful ventures in this field, from Safaricom – which together with local partners developed M-Pesa, a mobile banking system in Kenya that is now generating revenue of $203 million and directly employing over 50,000 people – to Sproxil, a company that has developed a text-message-based drug verification system that is saving thousands of lives and millions of dollars on counterfeit drugs each year.

But it’s not only hi-tech. Companies such as Procter&Gamble or Unilever have for many years been focusing on their expansion into the developing world. Even products as simple as soap can prevent diarrhoea, which causes over 2.6 million deaths each year.

A few Israeli companies are also active in the developing world. For example, Netafim, with its drip-irrigation systems, has been selling Israeli technologies to farmers in developing countries for over 40 years. Other companies, such as Arava Power, are realizing the opportunities that the developing world offers for renewable energy technologies. These businesses are not doing this because it’s good corporate social responsibility, although they do have dual social and profit motives. They are doing it because they understand that targeting these populations makes good sense financially.

INSTEAD OF designing another expensive hi-tech product for the tiny fraction of the world that can afford such items, re-focusing Israel’s entrepreneurial ability on solving these problems provides far more exciting opportunities. With its close proximity to Africa and Asia and its expertise in water, agriculture, renewable energy and medical technologies, Israel has the potential to be one of the leading sources of innovative solutions to problems facing the developing world.

Of course, “doing well by doing good” is no easy task and many such ventures have failed in the past. However, this is the nature of entrepreneurship and for those that succeed, there is a potentially sizable pay-off, both financially and socially.

Such a task demands not only innovative technologies, but also inventive business models to accompany them. Businesses need to find ways to generate revenues despite the limited budgets and volatile earnings of their target population. This is a challenge not only for the Israeli hi-tech word but also for Israeli businesspeople who need to understand how to commercialize these products in often challenging market conditions.

For example, pay-as-you-go solar power or single-sachet packaging have been found to be solutions to the poor’s small and volatile cash flow patterns and lack of savings.

NGOS AND aid agencies with experience in these countries who understand the local context and social practices also have an important role to play in identifying these needs and helping to generate appropriate solutions. For example, the Jewish Heart for Africa organization, which works to bring sustainable Israeli technologies to African villages, has accumulated much experience since its establishment in 2008, experience that can be utilized by Israeli companies looking to enter these markets while expanding the JHFA’s potential reach.

Although priorities may differ, the general goals of these different players can be aligned as the efforts required to make such businesses viable are similarly important for generating systemic and sustainable social change, desired by NGOs.

Internationally, these different worlds are beginning to merge. All the top business schools feature classes on social entrepreneurship or “business model innovation for the base of the pyramid,” and divisions focussing on private-sector-led development have become a feature of most leading international development agencies. The question is, where does Israel stand in this burgeoning “business-for-development” movement?

THIS IS the question that will be posed at the ID2 (Israel Designed, International Development) conference that will be taking place from January 7-9 in Mitzpe Ramon, which will focus on bringing together leaders from the private sector, government agencies and non-governmental organizations to brainstorm on harnessing Israeli innovation to solve international development challenges.

Knowledge of the developing world and the needs of its people is going to be a crucial element for future success on a global level and the sooner Israeli entrepreneurs understand this, the sooner they will begin to reap the financial and social rewards that these development opportunities provide.

The writer holds a master’s degree in international development from the London School of Economics and is working as a financial analyst. She is the conference coordinator of the ID2 conference. For more information visit http://www.id2.org.il.