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Leveraging R&D Collaboration to Foster Economic Growth

Leveraging R&D Collaboration to Foster Economic Growth. Michel Hivert April 2013. Israel at Glance. Population: 7.8 million Area: 22,145 sq.km GDP 2011: $243b, per capita: $30.2K 2010: +4.8%, 2011: +4.7%, 2012E: +2.9%, 2013E: +3.3% High-Tech exports: 2010: $44b, 2011: +4.3%, 2012E: +3%

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Leveraging R&D Collaboration to Foster Economic Growth

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  1. Leveraging R&D Collaboration to Foster Economic Growth Michel Hivert April 2013

  2. Israel at Glance • Population: 7.8 million • Area: 22,145 sq.km • GDP 2011: $243b, per capita: $30.2K • 2010: +4.8%, 2011: +4.7%, 2012E: +2.9%, 2013E: +3.3% • High-Tech exports: 2010: $44b, 2011: +4.3%, 2012E: +3% • Inflation: 2011: 2.2%, 2012E: 2.2% • Unemployment: 2011: 6.1%, H1/2012: 7.2% • OECD: 2010 full membership • Nobel prize: 10 winners, 6 in science, 2 in economics • DP 2011 rate of growth - global comparison: OECD member average: • 1.9%, US: +1.7%, Japan: +0.3%, Germany: +3.0%, France: +1.6% • China+ 9.3%, India: +7.7% Source: MOF, Bank of Israel, Israeli Central Bureau of Statistics, The World Bank

  3. “Innovation is the central issue in economic prosperity” (Michael Porter) Employment Growth Innovation / R&D Branding

  4. Israel is a global leader in research and innovation Israel Quality of Scientific Research Level of innovation Source: World economic forum, 2011

  5. Expenditure on R&DAs % of GDP, 2008, or latest available year Israel is ranked1st of all OECD countries by expenditure on R&D (research & development) as a percentage of GDP (4.27 %), demonstrating innovation, development and creativity. Source: OECD

  6. 15 Years of Venture Capital Activity at a Glance $20 billion invested in the VC sector • $14 billion raised by Israeli VC funds • M&A: $28 billion, IPO: $6 billion • More than 5,000 startups established • NASDAQ: 100 Israeli high-tech companies are listed • Main contributor to the economy, GDP, export, employment • Human capital emerged as Israel’s main resource • Global recognition achieved as an innovative technology center • • Source IVC 2012

  7. The Importance of High-Tech to Israel Main contributions to the economy • 40% of GDP annual growth • 50% of industrial exports • 40% of VC investments ends as tax revenue, direct and indirect each US dollar invested in R&D contributes 6 US dollars to industrial product Most new employment comes from new small businesses • 3:1 ratio of direct and indirect employees to engineers • employment growth rate is double that of the rest of the economy Suited to Israeli business culture • entrepreneurial culture – creative, persistent, innovative, must win attitude • large number of entrepreneurs and engineers per capital • using limited resources cost effectively Magnet of attraction to foreign investors Second only to the US • Roosevelt Island University project, NY, $2 billion investment, new technology center 12/11 won by Israel Technion and Cornell University Growth Engine of the Economy Source: IVC 2012

  8. Fundamental research Basic technology research Applied technology research Go to Market Ideas, concepts Pioneer Basic & generic Application Devices & systems Undefined 5-10 years 2-5 years <2 years Periods of research and innovation (typical) Public/Private Funding ratio Patents Time-to-Market ideas & concepts Deliver to market

  9. The innovation ecosystem is complex High skilled workers Researchers Entrepreneurs Funds Research Facilities Industry IP Protection Laws

  10. Government plays a key role in optimizing the ecosystem especially in small countries Risk sharing Infrastructure Social goals

  11. Government should enable and nurture Activelyencourage constant developmentof the ecosystem Provideconditionsfor continuous growthof companies But! It is notgovernment’s role to replace the private sector nor to predictthe “next big thing”

  12. Market Pull versus Knowledgepush Knowledge creationExploring new Ideas, Time frame 5-10 y Go to MarketUnder Industry Lead Time frame < 1 y Development :Incubators and Consortia between Academia and Industries Time frame 1-4 y

  13. PROGRAMING Combining several Enabling Technologies for advanced products Advanced materials Tyres Nanopowder for batteries Societal Challenge Microelectronics Electric vehicle Power MOSFET Nanotechnologies Sensor Photonics Led’s Biotechnologies Lotus effect windscreen

  14. There are many paths between an idea and a product… A single company Start-up Bi/multi national cooperation Basic research + R&D = Product development Consortium of Companies Societal challenge Funding

  15. OCSGovernment Support Programs Cooperative R&D Pre-Seed Generic R&D Competitive R&D Tnufa Magnet Industrial R&D TechnologicalIncubators Magneton National Seed Fund Nofar Long-Range R&D (Europe FP) Bi-national Funds Bi-national Agreements International Galileo Global Enterprises R&D Cooperation Applied Academic Research Basic R&D Market Proximity

  16. Israeli Government Support • Average project budget: 1 million Nis per year • Government support: Up to 50% • Support duration: 1 year • Annual Government support for International R&D projects: $100 million • Funding Rules: • Grants - scale from 20% - 50% of the approved budget + regional incentives • Conditional Grant: Royalty payments 3% - 5% • of the future product sales

  17. The Office of the Chief Scientist (OCS) • Established – 1975 and since 1985 working according to “The encouragement of Industrial R&D Law” • Budget for 2012: $407 M • For international activities an additional budget of $100M is allocated

  18. Project Selection Procedures • Submission by Applicants through online form (internet) – includes application form and budget (excel) • Evaluation • Head of Sector nominates an evaluator • Evaluator conducts on-site evaluation • Evaluator submits report to the Head of Sector • Final report submitted to the Research Committee • Decision by Research Committee Options: Approval, Rejection, Further Hearing • Monitoring • Final Audit

  19. Project Evaluation Possibilities

  20. Criteria for Evaluation

  21. The Research Committee • A statutory body, 9 members headed by the Chief Scientist, including representatives of the Ministry of Industry, Trade &Labor (3), Ministry of Finance (2) and representatives of the public (3) appointed by the ministers • Main function of the Research Committee: - To decide about the grant [approval, prescribing conditions for the approval, budget and extent of the state contribution ( 30%, 40% or 50%) ]

  22. Evaluation of Industrial R&D Projects Day 1 Day 42 Day 50 Month 4 Report Submission by Evaluator Project Submission/ Evaluation Begins Report Submission by Section Head Decision Announced • Although all R&D projects face time pressure, it is obvious that timely/quick evaluation is crucial and extremely important for industrial R&D • A reasonable, quick response is mandatory • According to our procedure, the Evaluator must submit the report within 42 days and the Section Head within a week • The decision will be announced up to 4 months from submission day

  23. Magnet-Generic R&D • 2012 Budget – 47M$. • Supports consortia of industrial companies and academic institutions. • Target: jointly develop generic, pre competitive technologies or dissemination existing new technologies. • The technology cannot be acquired from commercial sources at competitive prices. • Grants of up to 66% - no royalty repayments.

  24. Technological Incubators Pre-Seed & Seed R&D • 2012 Budget – 47M$ • A framework for nascent companies to develop their innovative technological ideas into start-ups that can attract private investors • Suitable facilities for R&D activity & administrative and logistic support to projects 24 Incubators 2 Industrial Incubators 1 Biotechnology incubator 8-10 projects in each incubator Grants- up to 85%

  25. OCS Grants by Technological Sectors, 2012

  26. Israel - A Global Leader in Water Innovation • Leadership born out of real need • Water is a national priority since Israel’s inception • Geography (arid land) & climate never worked in our favor • “Make the dessert bloom” is a central theme in Israel’s culture • Leading by example • Improved efficiency and innovation keeps water consumption steady despite immense growth in population • Israel reclaims almost 75% of its reused effluents for agriculture • By 2013 desalination plants in Israel will supply more than 500 million m3 of water per year, supplying 35% of the country’s fresh water needs • Hadera seawater reverse osmosis desalination plant is one of the largest in the world

  27. Israel - A Global Leader in Water Innovation • Israeli water industry recognized as a global superpower • Over 200 companies exporting water technologies • Export of over $2B annually, estimated to grow to $2.7B in 2014 • The main export destination is the US, followed by Germany, Italy, Spain, Australia, France, India, Mexico, China, and Turkey • Areas of expertise of Israeli water industry • Water management • Water for agriculture including drip irrigation • Water treatment • Desalination • Water safety and security • Water IT and Communications

  28. How Does MATIMOP Assist Industry? • Partner-Matching: Assists Israeli and foreign industries in locating partners for industrial R&D projects • Serves as a gateway to international high-tech industries • Extends platforms for cooperation • Implements national R&D support programs • Provides access to national funding schemes MATIMOP’s Database – 4000 Israeli companies and R&D capabilities Website www.matimop.org.il

  29. International Collaboration in Industrial R&D Europe FranceRussia (Rusano, Skolkovo)ItalyGermanyGreeceDenmarkHungaryTurkeyPortugalFinlandSwedenCzech RepublicBulgaria(New)Lithuania (New)SloveniaIrelandBelgium (Flandria)NetherlandsCyprus North America Asia New YorkMassachusettsMarylandVirginiaWisconsinColoradoIllinois OregonBIRD(Foundation)Canada-Israel I Ontario CIIRDF(Foundation) China(Most)Jiangsu, Guandong, Shandong Shanghai, Shenzen India (Most) Karnataka SIIRD-Singapore (Foundation)KORIL-RDF-Korea (Foundation) Latin America Mexico (Water) ArgentinaUruguayBrazil Australia (Victoria) * Through EUREKA (40 country Multilateral Initiative)

  30. Bilateral Projects Firm A Firm B Co - investment Follow-on (“go-to-market”) funding Governance Domain “follow-on” Domain

  31. Application Process An optimal tool for a bi-lateral program administration

  32. BIRD – Performance Summary • $290M granted • 825projects approved • $91Mrepaymentsfrom projects • ~$8B in sales generated directly and indirectly by BIRD sponsored activities

  33. Korea-Israel Industrial R&D Foundation • KORIL-RDF was incorporated in 2001 as a collaboration between the Korean Ministry of Knowledge Economy (MKE) and the Israeli Ministry of Industry, Trade & Labor (MOITAL) • The Foundation currently has an annual budget of US$ 3M designated for direct support of joint-venture commercial R&D . • KORIL-RDF is mandated to promote the most innovative and entrepreneurial industrial R&D. 121 Projects totaling over US$ 30 M have been approved to date in diverse technological sectors.

  34. Singapore – Israel Industrial R&D Foundation • Co-operation between Singapore’s EDB (Economic Development Board) & Israel’s OCS since 1997 Now at fifth phase: US$9 million (for 3 years) Total research investment of US$122 million and employment of 1,630 research scientists and engineers As of December 2012 a total of 114 projects approved

  35. MULTINATIONAL ENTERPISES Multinational Corporations are highly Influential on small economies and markets Global companies reach beyond the national limitations of governments . Co-ordinate production and R&D across many countries and shift activities upon demand and cost . Take advantage of profitable opportunities in foreign markets by setting subsidiaries and affiliate. Host countries count for a growing part of turnover, value added, employment and R&D services. SME face new challenges and opportunities .

  36. Foreign Companies Invested in Israel –Some Examples US Europe Asia • Microsoft • Epix • AOL Time Warner • Intel • IBM • Perrigo • Cisco Systems • GE Healthcare • Lucent • 3Com • Hewlett Packard • Stryker • Motorola • Sun Microsystems • Johnson & Johnson • Dentsply • Kodak • British Telecom • SAP • Philips Medical • Alcatel • Siemens • Cable & Wireless • Deutsche Telekom • Telecom Italia • Generali • Nestle • L’Oreal • Danone • Unilever • Vilmorin • Veolia • Ferring • MERCK Serono • Sony • Toyo Ink • Fuji • Honda • Sumitomo Trading • Nomura • Samsung Electronics • Daewoo • LG Group • Hyundai • Acer Computers • Macronix • Winbond • Hutchison Telecomm • Scigen • Jain Irrigation • Sun Pharmaceutical

  37. Multinationals- Success Stories 7,700 employees, first R&D center outside the US, 4 R&D centers, 2 manufacturing centers Developed: Pentuim, Centrino, Core 2 Duo, acquisitions – more than $2b, investment in Israel $7.3b 500 employees, R&D strategic centers, acquisitions over $700m in 2007-2011, support center for startups, first R&D center outside US 400 employees, 2 R&D centers, support center for startups 2011 - First R&D center outside US, first acquisition: $390m, Anobit 400 employees, 4 R&D centers, support center for startups, acquisitions: $900m 1,000 employees, 2 R&D Centers, acquisitions – more than $835m 1,200 employees, R&D center, manufacturing facility, acquisitions – $2.7b - Galileo 3,600 employees, 2 R&D centers, HP's largest software development site in the world 500 employees, 6 R&D sites, acquisitions – over $750m Selected list Source: IVC Research Center

  38. Global Enterprises R&D Cooperation • 22 Multinationals from all over the world: Abbott Alcatel-Lucent Arkema B. Braun Bombardier Transportation BT Coca-Cola Deutsche Telekom GE HP Infosys • IBM • Intel • Merck • Microsoft • Novozymes • Oracle • Philips • Posco • Procter & Gamble • Renault • Telecom Italia $5.3M granted to 80 Joint Projects (since launching the program in 2005)

  39. Active Programs in Latin America Brazil-Federal Agreement in Industrial R&D- focusing on Life Science, HLS,ICT, Renewable Energy -Open Call Sao Paulo- Matimop and FAPESP signed a bi-lateral agreement to promote R&D and innovation activities between entities , Call to be launched in April ,2013 Argentina- Bi-lateral Agreement- Next Call April,2013 Uruguay- Bi-lateral Agreement- Next Call April,2013 Columbia- New Bi-Lateral Agreement will be signed during 2013 Chile-New Bi-Lateral Agreement is expected within few month

  40. Uruguay - Israel • Both countries have strong stable democracies that gives predictability. • While Uruguay takes advantage of its big extensions of fertile land, making the agro-industrial complex the most important industry of the country, Israel is focusing on service and technology development. As a result, the Uruguayan and Israeli economies complement each other. • Uruguay’s biggest partners are Brazil, Argentina and China. Israel main commercial partners are the United States and Europe. Complementarities between both countries enable optimization of collaboration potential

  41. Bi-lateral Agreement in Industrial R&D 2008 – MOU signed between the Government of the Republic of Uruguay and the Government of the State of Israel Aim : Fostering & Supporting Bilateral Cooperation in Private Sector Industrial Research and development Cooperating Authorities: The Ministry of Economy and Finance of the Republic of Uruguay and the Ministry of Industry, Trade and Labor of the State of Israel (MOITAL) Implementing Entities of the agreement: ISRAEL MATIMOP - on Behalf of The Office of the Chief Scientist (MOITAL) URUGUAY ANII- The National Innovation and Research Agency on behalf of the Republic of Uruguay Uruguay-Israel Industrial R&D Cooperation 3rd Call for Proposals -April 2013 Aim-5 approved projects

  42. Collaboration with international financial institutions • World Bank Group: • MATIMOP cooperates with the World Bank Group, in particular with the International Finance Corporation (IFC). • Help IFC in screening innovative technology companies active in emerging markets . Companies participating in Matimop’s Americas programs, may apply to IFC for fund raising. • Inter American Development Bank (IDB): • Collaboration in innovation projects in Latin America, financed by the IDB • Joint participation in Innovation best practices workshops MATIMOP encouraging IDB to take a lead role in providing support & additional sources of funding aiming to enhance collaboration R&D schemes in Latin America

  43. International Activities Raises Israeli Company Productivity by 43% Total Productivity of exporting companies is 43% higher than non-exporting companies In terms of number of employees exporting companies are 116% larger than non-exporting companies Salary paid by exporting companies is on the average 27% more than that paid by non-exporting companies Productivity growth over 5 years form start of export is 12% greater than for non-exporting companies Research suggests two possible reasons for these results: Exposure of exporting companies to new technological developments globally enables technology to adapted by them resulting in enhanced output Global competition pushes exporters to raise their productivity. Source: Bank of Israel, 2011

  44. Impact assessment of international R&D collaboration D) • We find that sales and employment for Eureka participants are, on average, 28% higher than what sales and employment would have been if the firms had not participated in Eureka. • These are total average effects with dispersion around them: About 2/3 of the individual-firm effects are positive, meaning that 1/3 of the firms participating in Eureka exhibit a decrease in sales or employment relative to their “Twins”. • These are total increments for a 3-year post-Eureka innovation project period as a whole. In particular, they should not be understood as meaning that sales and employment are increasing 28% per year. • Large firms exhibit larger effects than SMEs: • Sales for larger firms are 29% higher while for SMEs are 27% higher. • Employment for larger firms is 43% higher while for SMEs is 18% higher. Source:E.G.P Applied Economics Lt 43 2010

  45. -Argentina Project: Development of unique location tracking solutions that enable organizations to control their assets and valuables using special tags Project Framework: Argentina-Israel Bilateral Program Participants: AeroScout (Israel) & Localizer-T (Argentina)

  46. -Argentina AIVO (Argentina) & Athena (Israel) HLS – Internet intelligence Project Design, develop and test a set of ontology and semantics based software to create a toolbox for organizations engaged in the gathering of open source intelligence (OSINT) from the internet.

  47. -Uruguay Project: Developing a platform for the consolidation and transfer of medical information via mobile devices Partners: Ideomobile (Israel) & Micropagos (Uruguay) Framework: Uruguay – Israel Industrial R&D Cooperation Program

  48. Small countries performance • Gross Domestic Product per Capital Index shows that 4 of 5 richest countries in the world have less that 5 MM inhabitants (IMF- International Monetary Fund). • the “Economist intelligence Unit” shows that 8 of the 10 most peaceful countries have less than 10 MM inhabitants. • the “World Economic Forum” competitiveness index suggest that 5 out of the 7 most “competitive” countries have populations of less than 10 MM. • the “Human Development Index” shows that 9 out of the 10 top ranked countries are considered small countries. Source: For nations, small is beautiful FT.com 2007

  49. Small in size,vastin opportunity Every body knows every body. Interdisciplinary research should be a competitive advantage to undertake. Increase support to innovative processes (piloting, demo, risk sharing….). Support innovative market demand by bottom up approach. Build a “spirit of innovation” by sustaining high public investment in R&D . Look for international cooperation and opportunities.

  50. To conclude: Business as usual is not an option Investing in applied knowledge is needed Adopt a bottom up approach is crucial Grasp the opportunities that science offers Small countries can play a major role in the global markets and in societal challenges.

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