Multinationals Spend Much More on Employees Than Israeli Startups, Report Says

Startups contributed NIS 7.73 billion (approximately $2.2 billion at the time), or 12.8%, of research and development expenditure in Israel’s business sector in 2017, according to an annual report published by Israel's Central Bureau of Statistics (CBS) Sunday. The report also revealed that multinationals paid on average almost 50% more a year per employee in 2017, compared to startups.

On average, most of a startup’s R&D expenditure in 2017, 59.4%, went toward wages and adjacent expenses, according to the report. Payments to third parties or support services amounted to 16.6% of the expenditure, and 6.5% was invested in fixed assets for R&D purposes. Among non-startup companies, wages and adjacent expenses accounted for 65% of expenditure, while third party payments stood at 14%.

According to the report, 48.7% of the startups that operated in Israel’s business sector in 2017 were software companies, 13.2% were medical device companies, and 10.1% were pharmaceutical companies. People employed in Israeli startups that year numbered 21,300, 14,700 of them in research and development.

The average yearly expenditure on wages for startups in 2017 was NIS 336,000 (approximately $97,000 at the time) per employee, while the median annual wage was NIS 288,000 (approximately $83,000 at the time). For software startups, 73.7% of expenditure was on wages and adjacent expenses, while for pharmaceutical startups it was only 23.4%—while 52.6% went towards third party services and knowledge, such as clinical trials. Most R&D expenditure, 60.9%, came from private sources such as venture capital funds and angels, while 10.3% came from the government. For non-startup companies in the business sector, government support contributed just 1.5%.

Many multinational companies operate Israeli R&D centers, including IBM, Google, Facebook, and Apple. In 2017, those centers racked up a total expenditure of NIS 27.9 billion (approximately $8 billion at the time), or 46.3% of all R&D expenditure in Israel’s business sector, a 14.6% increase from 2016. Those centers employed 40,200 people in R&D positions in 2017, a 21.9% increase from 2016. Software companies dominated here as well, with 52.1%, followed by electronic components with 25.6%, and electronic communication equipment with 8.1%. According to the report, multinational R&D centers are the main growth engine of Israeli R&D: between 2005 and 2017, Israeli-owned companies showed an average annual growth rate of 3%, non-Israeli companies without R&D centers showed a 3.6% annual increase, and R&D centers showed an average annual growth of 9.6%.

According to the report, multinational R&D centers pay high above the rest of the market. In 2017, they paid on average around NIS 499,000 (approximately $144,000 at the time) a year per employee, down from NIS 505,000 in 2016 but still much higher than startups, which paid NIS 336,000 on average (approximately $97,000 at the time).