530 multinationals from 35 countries innovating in Israel Amir Mizroch

https://www.forbes.com/sites/startupnationcentral/2019/05/27/530-multinationals-from-35-countries-innovating-in-israel/#c8bbdd33f5d1

Israel is emerging as a leading innovation destination for a growing number of multinational corporations looking to the country’s 6,000 plus startups for new ideas, quick prototyping ability, and infectious entrepreneurial culture, a new report shows.

The PwC report, commissioned by tech NGO Start-Up Nation Central, maps for the first time the activities of some 539 multinational companies (MNCs) representing 35 countries, who are currently active in Israel. It tracks the evolution of their innovation activity, showing that companies tend to increase and diversify their innovation activity with time in market, for example, going from tech-led R&D centers to operating startup accelerators and engaging in joint ventures. Download the full report here.

An unexpected benefit: many of the MNC’s themselves say they’re starting to take on some of the characteristics of the startups they’re working with, including regular pivots to new technology focus areas, faster execution of projects, and a higher tolerance for failure. “The Israeli way of approaching risk and failure, and the importance of giving startups independence and space to innovate – these core characteristics of the Israeli ecosystem allow MNCs to step outside of their comfort zone, re-think their approach to innovation and effectively tap into Israeli innovation,” the report states.

It is no longer just technology companies expanding innovation footprint but MNCs from a wider blend of industries. Deutsche Telekom, for example, regularly host management teams in Israel to absorb startup thinking. Pfizer, Genpact, Flex and Johnson Controls all have senior executives located in Israel who manage their companies’ global scope of technology scouting, product development, or open collaboration activities. Siemens’ Dynamo and Innogy’s Innovation Hub are unique innovation vehicles, not replicated anywhere in those groups’ global innovation portfolios.

In Israel, Multinationals like drugmaker Pfizer exhibit “Startup-Like” behavior.

Significantly, the report notes a shift, starting in 2014, from a traditionally R&D-led focus on engineering talent or IP assets, to more investment-led and partnership-led open innovation operating models. This shift has been accelerating, as more MNCs with operations in Israel choose to engage in diverse ways with more stakeholders, making innovation costs variable and on-demand. These models lead to early wins, which then tend to secure longer-term mandates to explore, with HQ commitment horizons of 1-2 years or more.

Despite the belief that returns on innovation are often necessarily indirect, intangible and long-term, the self-reported value to the multinationals surveyed is overwhelmingly positive: 80% of MNCs cite incremental innovation on existing products and services as a key benefit of their Israeli activities. Merck, the 350-year-old German pharmaceutical and chemicals firm, says almost half of its healthcare revenue is based on innovation stemming from Israel.

Merck, the 350-year-old German pharmaceutical and chemicals firm, says almost half of its healthcare revenue is based on innovation stemming from Israel.

The way MNCs measure the effectiveness of their innovation activity is also becoming more sophisticated, with over half saying they now measure the number of collaborations their teams embark on as an indicator of success. Other measures of effectiveness: innovation conversion rates (the percentage of proof of concept projects that lead to scaled commercialization), portfolio value and financial returns, service agreements, and new lines of business created.

Still, intangible benefits are valued in their own right, with innovation executives describing what “good innovation looks like” as the “mindset shift” engendered through broadening imaginations about potential group applications of emerging technologies. Another intangible measure of successful innovation performance cited is “the return on knowledge”—the level of visibility enabled by local operations to global leading practice around innovation–both in development and experimentation. Some of this also happens in “co-opetition” where competitors exchange insights and best practices due to the density of the ecosystem. One Chinese manufacturer innovating locally explained that only in Israel could their CEO-lead delegation meet with their Chinese competitors’ CEO for lunch.

MNCs interviewed for the report also cited the distinctive execution pace of Israeli startups and the growth in commercialization programs as a reason they’re diversifying their innovation activity.

Interestingly, growing multinational innovation activity in Israel has spurred growth in the number of third-party innovation facilitators, often within an industry focus.  The Shelf, for example, operates in the retail sector, and The Dock in the shipping and logistics sector. Coca Cola, Turner, Walmart, and Mercedes Benz work with The Bridge Builders to source and develop commercialized partnerships. These groups and others like them leverage industry contacts to host MNC delegations, scout for bespoke profiles, and coach startups in navigating MNC collaborations.

 

Formerly EMEA Tech Editor at The Wall Street Journal, Amir now heads communications for Start-Up Nation Central, an NGO connecting the world to Israeli innovation. amir.mizroch@sncentral.org

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