In Search for Innovation, EU Corporations Turn Their Eyes to Tel Aviv

Silicon Valley may hold the global crown when it comes to attracting European corporations looking to tap innovative new technologies, but Tel Aviv is closing the gap, and fast. Forty-one large European corporations currently operate an innovation outpost in Israel, almost half of which have set up shop in the past three years, according to a new report published Monday by Mind the Bridge, a Silicon Valley-based innovation advisory firm. In comparison, the number of large European corporations that operate an innovation hub in Silicon Valley currently stands at 60.

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The report's authors divided international presence in Israel into four categories: the corporate innovation antenna—a small scouting team that looks for technologies on a case-by-case basis; the corporate innovation lab—an incubator-like entity that recruits out-of-house research and development; the research and development center—an established outpost numbering at least 50 local employees, which draws on both local startups and local human talent; and a corporate venture capital (CVC) outpost—a local venture fund presence set up by an international corporation.

In terms of presence in Israel, the four top countries are Germany, with 13 corporations, among them Bosch, Daimler AG, Volkswagen, Bayer, and Merck; France, with 10, including the Renault Group and insurance company AXA; the U.K., with seven, including ARM and Barclays; and Switzerland, with four—Novartis, Lonza, Nestle, and Syngenta.

Overall, of the industry sectors represented among these corporations, the most popular are automotive and engineering and electronics, with life sciences a close third. Some corporations operate multiple outposts, such as Merck, which has one R&D center spread over four facilities, a lab, and two corporate venture capital (CVC) offices, according to the report.

In comparison to Silicon Valley, the authors conclude, Israeli outposts tend to be fewer in number but larger in scope—with R&D centers dominating thanks to Israel offering faster results and requiring smaller teams "due to the greatly concentrated and networked market, and the distinctive execution pace of local teams." In Silicon Valley, only 19% of the outposts are R&D centers, compared to 60% in Israel, while CVCs amount to 30%, compared to 12% in Israel.

"This seems to suggest that the raison d’etre in Silicon Valley is more transactional (investments and M&As), versus a more research/co-development approach in Israel," the authors wrote.

However, they added, over the past three years there has been a shift in Israel towards a more open and lean innovation model as well, echoing long-standing trends seen in Silicon Valley.