Although the multinational corporations’ activity in the ICT (Information and Communication Technology) field is already widespread, in other spheres, the scope of their R&D activity in Israel is relatively low. For example, while the ICT fields are responsible for 90 percent of R&D expenditure in the multinational corporations’ R&D centers, medical equipment is responsible for 4 percent, and pharmaceuticals for merely 2 percent (see Diagram 3). Non-ICT manufacturing sectors such as chemicals, plastic, and others – occupy only a tiny proportion of these corporations’ R&D expenditure.
Technological sectors suffering from under-representation in the multinational corporations’ R&D activity do not currently benefit from the technological advantages that they bring to the fields of ICT. These sectors will, therefore, profit greatly from the attraction of multinational corporations’ R&D centers in Israel. The cultivation of additional thriving innovation systems in areas in which the Israeli economy possesses a leverageable advantage is a central component in the Innovation Authority’s strategy. Accordingly, the granting of appropriate incentives to multinational corporations choosing to conduct R&D and other activity in the value chain, in fields other than ICT, is a clear strategic objective both for the Innovation Authority and for the government in general.
Indeed, the government has already begun acting in this direction: this year, the Innovation Authority launched a program to encourage the establishment or expansion of R&D centers’ activity in the fields of biotechnology and medicine. Also, the Ministry of Economy and Industry’s Foreign Investment and Industrial Cooperation Authority is active in attracting investments to Israel in the field of advanced manufacturing (for more details on these two programs, see the table below).
Steps to Expand the R&D Centers’ Activity in Israel
- The Innovation Authority is launching a trial program to encourage the establishment or expansion of the R&D centers’ activity in the fields of medicine and biotechnology.
The Innovation Authority is currently launching a pilot program with the objective of enabling multinational corporations, active in the fields of medicine and biotechnology, to establish or expand their Israeli R&D activity, technological innovation or production. The program leverages the changes in the tax regime of high-tech companies to expand their economic activity in Israel. The program has two central elements:
- Selection of R&D Centers Operating in the Fields of Biotechnology and Medicine: The selection entitles the centers to submit requests for grants from the Innovation Authority. The criteria for selection emphasize technological innovation alongside the expected contribution to the economy. Particular emphasis will be placed on the possibilities for the expansion of employment circles beyond the R&D employees and the contribution to the Israeli eco-system through activity in new technological fields or in areas in which the R&D activity in Israel is relatively low but possesses high potential.
- Awarding of R&D Grants to Companies Selected as R&D Centers in the following fields: The centers selected as eligible in this track will be able to submit a request for grants for R&D programs, including perennial programs, for a total of up to NIS 50 million for a six-year period. Centers receiving a grant will be exempt from paying royalties to the Innovation Authority. In addition to the degree of technological innovation and risk, the criteria for authorization of support for an R&D project in this track also include the expected contribution to the economy, from taxation and employment aspects, to innovation activities in which the Israeli economy lacks experience, and R&D supporting activities.
- The Foreign Investment and Industrial Cooperation Authority strives to encourage investments by multinational corporations in advanced production in Israel.
The Foreign Investment and Industrial Cooperation Authority, under the auspice of the Ministry of Economy and Industry, was established in its present format approximately two years ago out of a desire to increase quality foreign investment in Israel. Investment in advanced manufacturing by innovative multinational corporations is central in this regard, the objective being the expansion of Israel’s share in the innovative multinational corporations’ value chain from R&D alone to the manufacturing of higher technological intensity.
Within this framework, the Authority is operating on three central axes: Firstly, the Authority is focusing its marketing and development efforts towards promoting this model by means of designated conferences, global campaigns via different forms of media, delegations, and activity with target companies while utilizing the Department’s global array of attaches, and while relying on business intelligence capabilities developed by the Authority. Secondly, the Authority offers investors a One-Stop-Shop model including accompaniment throughout all stages of the investment with designated sector managers. Because investment in manufacturing occasionally results in increased “friction” between the company and government regulators, the Authority has also established an Investors Service Center with the goal of reducing this friction.
Thirdly, the establishment of the Authority in its current format merged the encouragement of foreign investments and activity associated with the foreign companies’ offset obligation in Israel. Because the majority of the obligated companies are also the world’s largest industrial corporations, the consolidation of these two spheres enables the leverage of the local activity from one of the foreign company’s obligation to that of opportunity for investment and growth in Israel, including manufacturing.
Further information can be seen on The Foreign Investment and Industrial Cooperation Authority.