Global Social Impact from the Innovation Nation

Public opinion of Israel’s “nation brand” has attracted a great deal of attention in recent years, with Israel ranking very low on such high-profile surveys as the Anholt-Gfk Roper National Brand Index. While these findings largely reflect negative public perceptions about Israel’s military policies, reactions in the business community to the performance of the country’s fast-growing private sector tend to tell a different story.

In fact, when it comes to the business community, Israel’s nation brand has continued to improve, climbing to the 30th spot among 100 counties in the 2010 FutureBrand Country Brand Index. And in a more narrowly focused report issued in 2011, Israel ranked highest in the world for venture capital investments as a percentage of GDP, according to the Organisation for Economic Co-operation and Development (OECD).

One aspect of Israel’s growing global role has attracted little attention among pollsters and headline writers, perhaps because it is so difficult to define and quantify: The growing social impact that innovative Israeli companies are having in a range of key activities, not just in Israel but around the world. On February 3, Wharton professors David Reibstein and Yoram (Jerry) Wind will shine a spotlight on that complex topic by hosting a webinar entitled, “Israel Innovation for Global Social Impact: Accomplishments and Opportunities.”

Israel’s reputation for making technological innovations has been well established; it has the second-largest number of NASDAQ-listed high-tech companies of any foreign country (behind China).  A less familiar fact, according to Wind and Reibstein, is that several of the most innovative Israeli companies have carved out significant market niches in high-value-added sectors by supplying products that improve the quality of life not just in Israel, but in many parts of Asia, Africa, Europe and Latin America. “These companies are not just involved in the generation of wealth, but in making contributions to social wellbeing,” notes Reibstein. Issues related to the availability and cost of food, water, energy, security, and health care  stand out as vital because they “are the cornerstones [for achieving] social impact,” he adds.

Some innovations in those sectors, and the companies behind them:

Food: Netafim pioneered drip irrigation technology that supplies even and timed distribution of water, fertilizer, and pesticides across agricultural fields. Netafim’s technology has been used by farmers in India, Mexico, Brazil and elsewhere, enabling them to grow more crops while using less water.  Tama Plastic Industry, based in Kibbutz Mishmar Ha’Emek, has developed wrapping and netting products that make it easier for farmers to preserve their output from moisture and protect it from rotting. Tama’s products, which hold a large share of their global markets, improve agricultural output and ultimately “help provide food to the world at lower prices,” states Reibstein.  Even low-tech innovations such as owls and kestrels helping eliminate pests from date fields without expensive chemicals has received attention for consumers looking for organic solutions and producers seeking higher profit.

Water: IDE Technologies, based in Kadima, has implemented desalination projects in such countries as China, India and Turkmenistan. In November 2011, IDE unveiled a transportable desalination system that uses traditional reverse osmosis technology but does not use chemicals, allowing cheaper and more environmentally friendly production of drinking water. Although housed in a standard, 12-meter-long skid-mounted container, a new unit can produce enough water to supply a hotel or small village in remote areas or disaster sites that have lost their water supplies.  Innovative conservation efforts include Miya employing high tech solutions to water leakage, and Israeli government information efforts featuring celebrities such as Bar Rafaeli.

Energy: NGO Jewish Heart for Africa installs Israeli solar and water pumping technology to residents of remote African villages that lack electricity infrastructure.  Better Place’s electric car system aims to profit from lowering the demand for petroleum.

Security: Tel Aviv-based Check Point Software Technologies, which is traded on the NASDAQ, provides a range of technology used by companies to secure the Internet and protect themselves against such global threats as hackers, spyware and identity theft. Check Point recorded revenues of $1.247 billion in 2011, and registered record-high earnings for the fourth quarter of last year.  Rafael Systems’ Iron Dome anti-missile program have defended civilians and military personnel from incoming rocket attacks.

Health care: The world’s largest generic pharmaceutical producer, Jerusalem-based Teva Pharmaceutical helps reduce the cost of pharmaceuticals around the world, notes Wind, by promoting the use of generics. Teva has also developed COPAXONE, the world’s best-selling treatment for relapsing-remitting multiple sclerosis, and AZILECT, an innovative treatment for Parkinson’s disease. Given Imaging’s PillCam assists in the diagnosis of gastrointestinal tract problems without invasive surgery.

Driven by Necessity

A common factor behind the development of these new technologies, says Wind, is the fact that Israeli companies have been driven by simple necessity. “There was no choice,” he states. “Israelwas a small country, attacked by its neighbors at birth, and isolated [in its region]. Necessity is the mother of invention. It was the only way the country could grow.” Reibstein adds that a lot of these innovations — such as Netafim’s drip irrigation technology or IDE’s desalination system — were developed “because they were needed byIsrael,” which suffered from an insufficient supply of fresh water.

Why have Israeli companies been so capable at jumping into distant global markets? Again, necessity has been a driving force. Unlike entrepreneurs in most emerging nations,Israel’s innovators haven’t been able to address the needs of their immediate geographical neighbors because of ongoing political tensions. “This forced Israelis to think globally, and to develop products for these markets,” notes Wind. “They were forced to think [about] where the basic needs were.”

Beyond that, Wind cites longer-term social and cultural explanations. “Jewish culture has historically challenged conventional wisdom, and encouraged innovation and creativity,” he says. In addition, he notes, all Israelis serve in the military, which has developed very sophisticated programs for identifying the best and brightest young men and women, and keeping detailed records about their talents and capabilities.

Multiple waves of immigration “brought an enormous amount of talent,” including large numbers of ex-Soviet scientists and engineers, following the collapse of the Soviet Unionin 1989, Wind adds. The emergence of first-class universities also helped by making it possible to create clusters of innovative companies around such schools as Hebrew University, IDC Herzliya, the Technion, Tel Aviv University, and the Weizmann Institute.  Meanwhile, the Israeli government’s industrial policy contributed by providing various incentives for corporate innovation, including tax benefits and matching government funds, Wind and Reibstein note.

Retooling for Growth

Despite this unique series of fundamentals, however, Israeli innovators face many of the same challenges confronting other companies around the world when it comes to future growth, says Wind. Historically, Israel’s most innovative companies have focused on markets in Europe and the U.S., and this is starting to change. The U.S. is no longer growing rapidly, and Europe may not be growing at all, he notes.  Asia and Latin America are recognized as the growth markets, forcing some Israeli companies to change direction and develop the sorts of expertise and products that meet the special needs of these expanding markets.

When it comes to boosting the country’s nation brand, there are other challenges. Global awareness of the rise of Israel’s most innovative companies has been muted by the fact that most of these firms are relatively small, Wind points out. Not a single Israeli company has become a recognized global player in its sector, with the possible exception of Teva, which has grown through a series of acquisitions. (Last October, Teva completed its acquisition of Frazer, Pa.-based Cephalon for about $6.5 billion.) Unlike many high-tech firms from other emerging nations that have remained independent as they grew — such as Samsung from South Korea and Nokia from Finland — many innovative Israeli companies have attained profitability and reached a significant scale of operations, only to become acquired by U.S. or other foreign-owned companies that were eager to access their innovative technologies and profitable niche markets. Recent examples include Anobit, a major maker of flash memory acquired last January by Apple; and Plastro Irrigation Systems, Netafim’s biggest competitor, acquired by John Deere in 2007.

Still, Israel’s most innovative companies are also challenged by some weaknesses in the country’s financial and social infrastructure. While venture capital investments in Israel reached a healthy 0.18% of GDP in 2009, a recent OECD report found Israel lacking in terms of the volume of investment in growth capital for its mature technology companies. Israel’s venture capitalists tend to invest in young start-ups, said the OECD, and Israel ranked behind the Czech Republic, Sweden and Luxembourg in terms of its growth capital investment. In another OECD survey, Israel ranked 29th out of 37 countries in terms of the bureaucratic burdens facing its start-ups, putting Israel only eight places above China, the lowest-ranked country. And on the question of how difficult it is to launch any business (not necessarily a high-tech start-up), Israel ranked a middling 15th out of 30 countries in 2010.

So while Israel has more than 140 high-tech companies that each have annual sales of more than $10 million, many of them may have trouble accessing the capital they need to transform themselves into larger, more mature companies, according to the OECD report. And until it becomes easier for these firms to gain access to such capital, Israel’s growing community of innovative firms may not be able to maximize their long-term potential to deliver a global social impact.

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