"The non-development of small companies to production and marketing stages and the minority of large companies result in limited exploitation of the benefits of business R&D for the benefit of the Israeli economy." This is according to a document issued by the Knesset's information and research department in preparation for a discussion in the economy committee that took place recently. In other words, the premature exits are the editors of the Israeli economy.
"The non-development of small companies to production and marketing stages and the minority of large companies result in limited exploitation of the benefits of business R&D for the benefit of the Israeli economy."
This is according to a document issued by the Information and Research Department of the Knesset in preparation for a discussion in the Economy Committee that took place recently. In other words, the premature exits are the editors of the Israeli economy.
"The main points of criticism on the development of the local hi-tech industry are the non-development of small companies to advanced production stages and the minority of large companies. Despite the rapid growth in some start-up companies. A significant part of the successful companies are sold to parties outside of Israel even before they have reached the stage of producing a product and marketing it extensively. Few large hi-tech companies that grew up in Israel still continue to operate there, and thus the potential contribution to the economy of a knowledge-rich industry has not been realized.
Extensive government aid is given to knowledge-intensive industries in the R&D stages through the Office of the Chief Scientist, but the government aid in the marketing and business development stages is much smaller, although sometimes the marketing and business development costs are even higher than the development costs. There is a market failure here: the entrepreneurs and investors, mainly in venture capital funds, derive maximum benefit from the sale of the venture in relatively early stages, while the entire economy benefits from the continued development of some companies even in the production and marketing stages.
The report shows that the investment in civilian R&D as a percentage of GDP in Israel (4.4% in 2011) is the largest in an international comparison. The proportion of government funding in the total national expenditure on R&D is small in Israel compared to the OECD countries, and it is on a downward trend in the last decade: in 2000 about 24% of the national expenditure on R&D was government funded, compared to about 14% in 2009. At the same time Applied to it with the participation of the business sector and foreign parties.
In 2012, the budget of the Office of the Chief Scientist was NIS 1.57 billion and in 2011 – NIS 1.45 billion. In the years 2012-2009, the chief scientist's budget decreased by 20.3%, to NIS 1.25 billion. In 2011, the Ministry of Economy's expenditures on civilian R&D were about 63% of all government-funded R&D expenditures (without the OT budgets), and hence it is the main government ministry in funding R&D in Israel.
In 2012, the collection of the chief scientist's royalties from companies that received support in the past amounted to 641 million NIS, which is about 41% of the scientist's budget. In previous years, the average royalty rate was in the scientist's budget. 28.5%
The share of small companies (companies with annual sales of up to one million dollars) in the total support given by the chief scientist increased from approximately 46% in 2005 to approximately 60% in 2012. At the same time, support for medium-sized companies (annual sales of one million to 100 million dollars) decreased ), from 32% in 2005 to 23% in 2012.
The authors of the report report an improvement in the geographical distribution of the chief scientist's grants - although companies in the central district receive the majority of the chief scientist's grants - 56% of the total grants - there is a trend of dispersing the grants to companies in the periphery as well: the proportion of grants to companies in the northern district increased from 12% in 2002 to 26% in 2012. The rate of grants to companies in the South District increased from about three percent in 2002 to about 10% in 2012. The rate of grants to the Jerusalem District doubled from about four percent in 2002 to eighty percent in 2012.
About 80% of the total national expenditure on civil R&D belongs to the business sector. Business R&D relies heavily on international companies and bodies for funding and management. In addition to this, the high-tech industry is characterized by the non-development of small companies to advanced production and marketing stages and a minority of large companies. These factors result in limited exploitation of the benefits of business R&D for the benefit of the Israeli economy.
The authors of the report also state that the Office of the Chief Scientist also works to encourage R&D in traditional industry and in the peripheral areas, in order to create a growth engine parallel to the high-tech industry in traditional industry, and in the process to reduce the gaps between the center and the periphery.
One response
The marketing phase consumes approximately 10 times more financial resources than the product development phase. The success statistic is approximately equal to 10%. But the big problem is that Israel has no experience and knowledge in marketing consumer products, which are the majority of the world market. Most of the big successes have been in marketing to large companies in the market with individual consumers. There are exceptions, Soda-Stream for example, but it took them decades to develop and learn. (Teva markets to a small number of pharma chains in the world, and the buyer who asks for a generic medicine does not know at all if he was given a Teva product).
So, in my opinion, we should focus on what we are good at - product development, and after the product works, establish companies in the world funded by American or European venture capital companies, for marketing purposes, while keeping the development center in Israel.