McKinsey’s Fast Growth practice has been helping multinational corporations boost their innovative capabilities by opening the door to this vibrant ecosystem and leading them on Israel Innovation Visits.

A concentrated hub of innovation

Israel has been consistently recognized as one of the highest performing innovation centers in the world. Israel has the highest VC investment rate per capita in the world [1] and is the third largest source of foreign companies listed on the NASDAQ exchange [2]. Five billion dollars of venture investment flow to Israeli companies annually [3]. Israel is ranked the 2^ndmost innovation intensive economy by the World Economic Forum [4], has the highest rate of expenditure on R&D in the OECD [5], and has the most scientists and engineers per 10,000 workers in the world (135 in Israel, compared to 85 in the United States) [6].

Some of the leading technologies used globally have been developed in Israel: the disk on key, internet firewall protection, chat and voice-over-IP technologies, life changing medical devices, drip irrigation technologies, navigation apps, sensor technologies applied in car safety devices, and many more.

Israeli innovation crosses sectors such as cybersecurity, IoT, automotive, semi-conductors, medical devices, and agricultural technologies.

Success Factors

Israel’s success is the result of a combination of factors, including its unique history and a strong entrepreneurial culture.  Israeli companies also enjoy access to capital, governmental support, and a highly educated workforce—fostered in part by mandatory military service, which facilitates the transfer of knowledge and ingenuity to the civilian market and inculcates a culture of success with limited resources.  One example of the contribution of the military sector to the civilian tech ecosystem can be found in the cybersecurity field: tech transfer from the defense establishment has made Israel a world leader in the development of cybersecurity technologies. And this expertise has attracted significant private investment.  To date, 20% of global investments in cybersecurity are in Israel-based companies [7].

Multinational presence

Over the years, multinational companies have recognized the innovative culture and potential of the Israeli market, and set up a presence in Israel, either by acquiring local startups or by establishing R&D centers. A partial list of multinationals corporations that have established a significant presence in Israel includes:   Microsoft, Motorola, Google, Apple (three R&D centers), Facebook, Berkshire-Hathaway, Intel, HP, Siemens, GE, IBM, Philips, Lucent, AOL, Cisco, Applied Materials, IBM, J&J, EMC, and General Motors.

Israel Innovation Visits

Bringing these trends together, McKinsey’s Fast Growth Practice has launched an initiative to connect innovative incumbents with the best of the Israeli tech sector.  The “Israeli Innovation Visits” connect our deep understanding of corporations and their key innovation pain points with our expertise in and familiarity with the Israeli startup ecosystem. The innovation visits are an integral part of a corporation’s digital journey in which the client identifies the core issues it wishes to address, travels to Israel for a focused visit in which key executives meet the innovators who would be most relevant to their needs, structure, and organizational DNA.

On a typical 2-3 day visit, we connect our traditional clients with the leading players in the Israeli ecosystem including startups, VCs, corporate innovation centers, academic centers, and others. The Israeli Innovation Visits have been helping leading multinationals design their approach for engaging with the Israeli innovation ecosystem.

As a result of their visits, numerous clients have taken steps to more closely integrate their own innovation practices with those in Israel.  Among other outcomes, the innovation visits have led to:

• Strategic partnerships between multinational corporations and Israeli startups to develop and roll out new technologies and products;
• Multinationals setting up local scouting teams in Israel;
• Corporate investment in Israeli venture funds; and
• Public sectors actors adopting Israeli practices to create their own local innovation hubs.

One of our recent clients, a VP of a multinational bank had this to say about his visit:

“I wanted to thank you for putting a fantastic agenda together which was flawlessly executed every step of the way.   Your choice of firms, venues, serial entrepreneurs, and themes was outstanding.   We learned so much about the fintech and cyber ecosystem in Israel, and what makes it so special.  Thank you also for arranging a few opportunities to learn more about the country, its people and the history.”

[1] EY Global Venture Capital Trends 2015, IVC,  National Venture Capital Association, World Bank (country population data); National Venture Capital Association, http://nvca.org/pressreleases/58-8-billion-in-venture-capital-invested-across-u-s-in-2015-according-to-the-moneytree-report-2; EY Report, http://www.ey.com/Publication/vwLUAssets/ey-global-venture-capital-trends-2015/$FILE/ey-global-venture-capital-trends-2015.pdf

[2] Nasdaq.com, February 2016

[3] IVC, http://www.ivc-online.com/Research-Center/IVC-Publications/IVC-Surveys/High-Tech-Capital-Raising

[4] Lobal Competitiveness Report 2016-2017, http://www.nmi.is/media/338436/the_global_competitiveness_report_2016-2017.pdf

[5] OECD Science, Technology and Industry Scoreboard 2015, p.98, http://www.keepeek.com/Digital-Asset-Management/oecd/science-and-technology/oecd-science-technology-and-industry-scoreboard-2015_sti_scoreboard-2015-en#page98

[6] The Global Prosperity Index, 2011, http://martinprosperity.org/media/GCI%20Report%20Sep%202011.pdf

[7] Israel’s Cybersecurity Industry in 2016, Startup Nation Central, February 2017