Why are global tech giants investing so much in Israel?

ECONOMIC AFFAIRS: Corporate titans like Google, Microsoft and Intel continue to channel billions to Israeli innovation – with apparently good reasons.

 ALPHABET AND GOOGLE’S CFO, Ruth Porat (third from left) takes a selfie with Google Israel staffers during her visit here this week.  (photo credit: TOMER FOLTYN)
ALPHABET AND GOOGLE’S CFO, Ruth Porat (third from left) takes a selfie with Google Israel staffers during her visit here this week.
(photo credit: TOMER FOLTYN)

Despite the third year of the global pandemic looming, international conflicts coming to a head, and Amazon thinking it can do justice to the Lord of the Rings franchise, at least one industry is doing great: the Israeli hi-tech sector.

Will 2022 break last year's investment record? 

Last year was a banner year for the blue and white country. According to a report from Start-Up Nation Central, Israel’s tech sector raised a record $25 billion last year, as large venture capital funds channeled money to innovative companies, and it seems as though 2022 is closely following suit.

In just the last few months, global tech industry giants like Intel, Microsoft and Google have turned their towering gaze to Israel seeking talent and innovation. Skill training programs, company acquisitions, and the establishment of new corporate infrastructure in Israel are becoming frequent headlines, and it seems as though things are just getting started.

Google's "skilling initiative"

Earlier this week Google announced that it will invest $25 million in increasing opportunities within the Israeli hi-tech field over the next five years for marginalized groups, including women, Arabs, ultra-Orthodox (haredi) Jews, and residents living outside of Israel’s main tech hubs. Also on Google’s agenda is an initiative for the Palestinian tech sector.

On Sunday, Alphabet and Google’s CFO, Ruth Porat, met with the US ambassador to Israel as well as female and Arab entrepreneurs, investors and engineers, in order to discuss their integration into the industry. She went on to meet with several Israeli and Palestinian business leaders, policy-makers and Google employees during her visit.

 THE MICROSOFT Israel development center in Herzliya Pituah. (credit: GILI YAARI/FLASH90) THE MICROSOFT Israel development center in Herzliya Pituah. (credit: GILI YAARI/FLASH90)

The “skilling initiative” aims to equip the target groups with necessary skills to succeed in the hi-tech sector, which lately has been struggling to fill the slew of job positions that the industry’s recent success has allowed to open. According to a press release, the program will support government efforts to increase the number of hi-tech employees in the Israeli workforce from 10% to 15%.

“At Google, we believe that to have sustainable economic growth, you must have inclusive growth,” said Porat. “By providing members of underrepresented groups with a path into tech, we hope to help create a more diverse workforce, and increase opportunities for a broader group of people. We look forward to deepening our commitment to Israel as we work to support the government’s ongoing efforts in this area.”

Foreign Minister Yair Lapid provided further insight into the importance of the initiative: “We in Israel aspire to reach one million Israelis working in hi-tech. This is our comparative advantage. This is our way of ensuring Israel will be an innovative and advanced country with a high standard of living and quality of life,” he said. “The way to do this is to bring additional, diverse populations into the field: something which will also contribute to the hi-tech industry itself. This is a national mission which cannot succeed without cooperation with major employers in the field.”

Google increasing the hiring pool is a strategic move, as the search for Israeli talent is becoming a key point of interest for large companies.

“There is a huge war out there,” said Ofir Dubovi, co-founder and investor at OpenValley. His company acts as a second phase accelerator for successful start-ups, and he’s seen more and more interest from industry leaders in recent months.

He also noted that the government has been working to spread out the borders of the hi-tech sector from Tel Aviv, in order to encompass more potential hi-tech workers. For example, “the government approved a program to pour billions of shekels into the Golan Heights in order to double this population in establishing infrastructure and the communication,” which is critical in broadening Israel’s tech presence in noncentral cities.

Israel - "a hotbed for digital innovation"

The government isn’t the only entity interested in establishing more hi-tech infrastructure in Israel, as industry monolith Microsoft makes moves to expand its current presence. This year, Microsoft announced that it will open a branch in Jerusalem, and the company is expected to launch a cloud data center in Israel, which will enable the company to offer low-latency data-resident cloud solutions to customers in the region.

“Israel is a hotbed for digital innovation and entrepreneurship, and cloud technology is playing a pivotal role in new and exciting opportunities for local organizations and communities,” said Ronit Atad, general manager at Microsoft Israel. “Behind every successful organization’s resilience and growth is the need to enhance their own digital capability. Cloud computing is at the heart of that, with customers’ data being one of their strongest assets in leading to the acceleration of their businesses and the Israeli economy.”

Indeed, cloud computing is a crucial aspect to note when considering Israel’s importance to tech industry leaders. Since the advent of software as a service (SaaS) platforms – which rely heavily on cloud computing technology – the way that these global companies market their cloud platforms has evolved significantly.

“In the past, they were more focused on selling directly to their customers. Now, they understand that in order to grow in the way they want to grow their businesses, they should focus on partners. And these partners bring their customers to the cloud vendor,” which in turn generates higher cloud consumption and revenue for the vendors, explained Dori Exterman, CTO at Incredibuild.

Incredibuild grants cloud-based tech companies fast and efficient performance solutions while optimizing cloud costs, making them very attractive to cloud vendors such as Google, Amazon and Microsoft.

“Cloud vendors are looking for exactly these kinds of partners,” added Exterman. “And, due to the move toward SaaS offerings, these companies that are generating cloud revenues don’t necessarily need to reside in the US in order to sell their solutions.”

Which, logic follows, has led them to Israel, as its booming hi-tech sector continues to churn out new concepts and opportunities to utilize the cloud vendors’ platforms.

“This has shifted a lot of attention outside of the US to areas in which there is strong hi-tech with the ability to sell strong services that will increase the vendors cloud consumption,” Exterman said. “That’s one of the main reasons that these cloud vendors are looking outside of the US to companies that have large potential of increasing their cloud revenues.”

Israel as a hi-tech brand

ANOTHER WAY that industry leaders are benefiting from Israeli innovation is by simply bringing the best players into the corporate team. Intel has been doing just that, buying several promising and successful Israeli companies like Mobileye, Moovit and Habana for billions of dollars within the past half decade.

Most recently, the company announced the purchase of Tower Semiconductor, a leading product of chips and semiconductors with facilities in the US, Japan and Israel. “Tower’s specialty technology portfolio, geographic reach, deep customer relationships and services-first operations will help scale Intel’s foundry services and advance our goal of becoming a major provider of foundry capacity globally,” said Pat Gelsinger, Intel CEO.

Intel has also appointed 14 Israelis to senior positions within the company in the past two years. They were given top positions in its Global Production, Chip Design and Development, and Personal Computing groups.

This level of interaction with the Israeli hi-tech industry indicates that Intel is paying close attention to the Start-Up Nation’s efforts, and recognizes the country as a source of top-tier talent and industry-leading innovation – two crucial factors that continue to drive its popularity among the hi-tech superpowers of the world.

“It’s all about creativity and adaptability,” said Ilana Brand, Reshet 13 mentor and life performance consultant. “Evident in what we’ve managed to build in just over 70 years, Israelis are incredibly creative and highly adaptable, which for large corporations, such as Google and Microsoft, are highly valuable qualities, crucial for solving problems and inventing new concepts.

“We Israelis enjoy strong brand recognition due to our history, as well as how we continue to thrive, considering the geopolitical challenges our region has always been facing.”