Produce, Research & Develop The Israeli Advantage State of Israel Ministry of Industry, Trade & Labor Foreign Trade Administration Investment Promotion

Produce, Research & Produce, Research & DevelopDevelop

The Israeli AdvantageThe Israeli Advantage

State of Israel Ministry of Industry, Trade & LaborForeign Trade AdministrationInvestment Promotion Center

Main Indicators 2000-Main Indicators 2000-20042004

20002000200120012002200220032003

InflationInflation (%)(%)0.00.01.41.46.56.5-1.9-1.9

UnemploymentUnemployment (%)(%)

8.8 8.8 9.39.310.310.310.710.7

Imports ($ Imports ($ billion)billion)

35.2 35.2

30.930.932.632.633.733.7

Exports ($ Exports ($ billion)billion)

28.328.327.427.425.825.827.927.9

GDP ($ billions)GDP ($ billions)110.1 110.1

109.5109.5102.7102.7109.1109.1

GDP/Cap ($)GDP/Cap ($)17,581 17,581

17,18017,18015,46815,46816,31216,312

20042004FF

1.11.1

10.210.2

40.540.5

33.733.7

113.7113.7

17,20017,200

Investment climate in IsraelInvestment climate in Israel

Foreign Direct InvestmentForeign Direct Investmentin Israelin Israel

-

1,000

2,000

3,000

4,000

5,000

6,000

91' 92' 93' 94' 95' 96' 97' 98' 99' 00' 01' 02' 03'

millio

ns

US

D

Source:Bank of IsraelNot including traded securities


Sources of Foreign Sources of Foreign Investment -2003Investment -2003

Asia6%

North America49%

Europe27%

Other18%

Source: Israel Venture Association ,

March 2003


Foreign Companies Foreign Companies Invested in Israel- Some Invested in Israel- Some ExamplesExamples

MicrosoftMicrosoft Pratt & WhitneyPratt & Whitney AOL Time WarnerAOL Time Warner IntelIntel IBMIBM Boeing EnterprisesBoeing Enterprises Cisco SystemsCisco Systems GEGE LucentLucent 3Com3Com Hewlett PackardHewlett Packard Merrill LynchMerrill Lynch MotorolaMotorola Sun MicrosystemsSun Microsystems

SiemensSiemens DaimlerChryslerDaimlerChrysler VolvoVolvo Cable & WirelessCable & Wireless BaanBaan VolkswagenVolkswagen Deutsche TelecomDeutsche Telecom L’OrealL’Oreal British TelecomBritish Telecom DanoneDanone Ares SerenoAres Sereno UnileverUnilever

US Europe Asia Samsung ElectronicsSamsung Electronics DaewooDaewoo NomuraNomura Hutchison Telecomm.Hutchison Telecomm. LG GroupLG Group SonySony Toyo InkToyo Ink HyundaiHyundai Acer ComputersAcer Computers Sumitomo TradingSumitomo Trading FujiFuji HondaHonda

Investment climate in IsraelInvestment climate in Israel Supportive Business Supportive Business EnvironmentEnvironment

Worldwide taxation and customs treaties Worldwide taxation and customs treaties Protection of trademarks, patents and Protection of trademarks, patents and

intellectual property of all kindsintellectual property of all kinds Comprehensive legal protection of Comprehensive legal protection of

foreign companiesforeign companies State of the art telecommunicationsState of the art telecommunications A highly advanced banking and financial A highly advanced banking and financial

sectorsector

““The World's Rising The World's Rising Innovation Hot Spots"Innovation Hot Spots"

INDIAINDIA S. KOREAS. KOREATAIWANTAIWANSINGAPORESINGAPOREISRAELISRAELRUSSIARUSSIACHINACHINA

“Israel's strengths: Optical and wireless communications, chips, software, sensors”

BusinessWeek, October 11, 2004

R&D R&D SpendingSpending

1%1% OF GDPOF GDP

1.2%1.2%OF GDPOF GDP






U.S U.S PatentsPatents

1993 2003 1993 2003 1993 2003 1993 2003 1993 2003 1993 2003 1993 2003

30 354 60 366 62 268 3061,188

39 438 62

5,300

764

3,952

Innovation climate in IsraelInnovation climate in Israel Scientists & Technicians Scientists & Technicians per 10,000 Workersper 10,000 Workers

140

83 80

60 55 5545 43

33 33 3225

0

20

40

60

80

100

120

140

Innovation climate in IsraelInnovation climate in Israel

Entrepreneurship Entrepreneurship

0

1

2

3

4

5

6

7

8

9

10

Source: IMD World Competitiveness Yearbook, 2002

Innovation climate in IsraelInnovation climate in Israel IMD World Report 2002IMD World Report 2002

Country Rank Country Rank 1st1st22ndnd33rdrd

Quality of basic researchQuality of basic researchUnited United StatesStates

FinlandFinlandIsraelIsrael

Legal environment for technology Legal environment for technology development and applicationdevelopment and application

FinlandFinlandIsraelIsraelSingaporeSingapore

Quality of university educationQuality of university educationIsraelIsraelFinlandFinlandIrelandIreland

Number of outstanding engineersNumber of outstanding engineersIndiaIndiaSlovakiSlovakiaa

IsraelIsrael

University-industry collaborationUniversity-industry collaborationFinlandFinlandIsraelIsraelUnited United StatesStates

Technological tie-ups between Technological tie-ups between companiescompanies

FinlandFinlandSwedenSwedenIsraelIsrael

Source: IMD World Competitiveness Yearbook- 2002 Edition, White Paper on International Trade 2002

Innovation climate in IsraelInnovation climate in Israel Wall Street Journal - 2004 Wall Street Journal - 2004 Technology Innovation Technology Innovation AwardsAwards

GOLD WINNERGOLD WINNERSun Microsystems Sun Microsystems Laboratories Laboratories

U.S.U.S.New method for chips to transmit data inside a New method for chips to transmit data inside a computer up to 100 times faster than today's top computer up to 100 times faster than today's top speed.speed.

SILVER SILVER WINNERWINNER

Given Imaging Ltd.Given Imaging Ltd. IsraelIsraelPill-shaped video camera screens the esophagus for Pill-shaped video camera screens the esophagus for disorders.disorders.

BRONZE BRONZE WINNERWINNER

InSightec Image InSightec Image Guided Treatment Guided Treatment Ltd. Ltd.

IsraelIsraelDevice destroys tumors using ultrasound waves Device destroys tumors using ultrasound waves together with magnetic resonance imaging.together with magnetic resonance imaging.

HONORABLE HONORABLE MENTIONMENTION

Flarion Technologies Flarion Technologies Inc. Inc.

U.S.U.S.New approach to mobile broadband networks, New approach to mobile broadband networks, based on Internet protocol.based on Internet protocol.

HONORABLE HONORABLE MENTIONMENTION

Witten Technologies Witten Technologies Inc. Inc.

U.S.U.S.Technology that creates detailed images of Technology that creates detailed images of conditions underground. conditions underground.

The Wall Street Journal received 585 applications from around the world for the 2004 Technology Innovation Awards.

*

Innovation climate in IsraelInnovation climate in Israel PatentsPatents

Israel - An annual increase of 20% Israel - An annual increase of 20% Source: BDI - Business Data Israel

Number of patents (per 10,000) registered in the U.S. during 2003

2.98 2.96

2.042.02 1.92

1.741.5

0.7 0.68

0

0.5

1

1.5

2

2.5

3

3.5

Japa

n

Taiw

an

israe

lSw

itzer

land

Swed

en

Finla

nd

Ger

man

y

Franc

e

Britai

n

Recent trends and developmentsRecent trends and developments Recent M&ARecent M&A

Israeli Company Technology Acquirer Sum Time

P-CUBE Traffic Management CISCO $200 million August 2004

ENVARA Wireless infrastructure INTEL $40 million March 2004

EMBLAZE Chips for Mobile-device applications

ZORAN $54 million June 2004

ACTONA TECHNOLOGIES

Enterprise software CISCO $100 million June 2004

A2I Content management software

SAP $10 million July 2004

SANCTUME Web security WATCHFIRE $45 million July 2004

Agis Pharmaceutical Perrigo $900 million November 2004

ART Technologies & Phonetic Systems

Speech Applications Scansoft $100 million November 2004

Investment in Investment in TechnologiesTechnologies According to According to

foreign investors, foreign investors, following the following the Silicon Valley and Silicon Valley and Boston, Israel is Boston, Israel is the the main centermain center to search for new to search for new technologies technologies High Tech High Tech Investments Q1-Q3 Investments Q1-Q3 20042004

584

636

502

551

832

861

1,804

7,170

1 10 100 1000 10000

Ernst and Young, October 2004

VC InvestmentsVC Investments (by quarter)(by quarter)

0

100

200

300

400

500

600

$ USD millions

Q2 Q3 Q4 Q12002

Q2 Q3 Q4 Q12003

Q2 Q3 Q4 Q12004

Q2 Q3

Source: IVC Online

Major R&D EffortsMajor R&D EffortsStretching Boundaries of Imagination & IngenuityStretching Boundaries of Imagination & Ingenuity

• Innovative synergistic industry-academy cooperation, supported by the Chief Scientist, Ministry of Industry & Trade.

• Over 100 industrial & academic participants.• Focused on establishment of the technological

infrastructure for the next generation.• Key telecommunications R&D activities:

Digital wireless Satellite systems Broadband & optical technology

Internet & Multimedia Telemedicine Microelectronics Network management

Recently Established Recently Established R&D CentersR&D Centers 18-December-2004 - Telynx (USA) - Data-18-December-2004 - Telynx (USA) - Data-

processing, software and services: Opening of a processing, software and services: Opening of a research and development center in northern Israelresearch and development center in northern Israel

18-December-2004 - BrainStorm (Canada) - 18-December-2004 - BrainStorm (Canada) - Biotechnologies : Announced a new research center Biotechnologies : Announced a new research center in Kiryat Ha'Mada Ve Ha'Technologiain Kiryat Ha'Mada Ve Ha'Technologia

15-November-2004 - Huawei Technologies (China) - 15-November-2004 - Huawei Technologies (China) - Data-processing, software and services : Data-processing, software and services : Establishing $2m Israeli R&D centerEstablishing $2m Israeli R&D center

25-October-2004 - 3M (USA) - Drugs: Minnesota-25-October-2004 - 3M (USA) - Drugs: Minnesota-based giant, 3M, o invest in R&D operations in based giant, 3M, o invest in R&D operations in IsraelIsrael

Source: ANIMA

Technology Start-Technology Start-upsups

Israel is one of the largest world centers Israel is one of the largest world centers for start-up enterprises, with ~800 (year for start-up enterprises, with ~800 (year 2003) active start-ups.2003) active start-ups.

Innovative, technology-intensive activity, Innovative, technology-intensive activity, representing several technology representing several technology breakthroughs.breakthroughs.

Major international activity:Major international activity:– Strategic alliances and joint ventures.Strategic alliances and joint ventures.– Raising capital - venture, seed & risk Raising capital - venture, seed & risk

investments.investments.

Venture CapitalVenture Capital Investments by venture capital funds constitute an Investments by venture capital funds constitute an

added value above financial contributions - in added value above financial contributions - in management, world market familiarity, strategic management, world market familiarity, strategic guidance and economic credibility.guidance and economic credibility.

During 2003, 371 Israeli companies raised $1.01 During 2003, 371 Israeli companies raised $1.01 billion (compared to 352 companies & $1.14 billion billion (compared to 352 companies & $1.14 billion during 2002).during 2002).

43% ($421 million) was invested by Israeli venture 43% ($421 million) was invested by Israeli venture capital funds. capital funds.

The active sectors are communications (33%), The active sectors are communications (33%), software (19%), life sciences (18%), semiconductors software (19%), life sciences (18%), semiconductors (12%) & Internet (4%).(12%) & Internet (4%).

Source: IVC Research Center (2004)

Israeli Revenue-Israeli Revenue-driving Innovationsdriving Innovations

The cellular phone, Motorola IsraelThe cellular phone, Motorola Israel The Pentium MMX Chip technology, the The Pentium MMX Chip technology, the

Pentium-4 microprocessor and the Pentium-4 microprocessor and the Centrino processor, Intel Israel Centrino processor, Intel Israel

Medinol’s minimally-invasive Medinol’s minimally-invasive cardiovascular stent technologycardiovascular stent technology

AOL Instant Messenger technology, ICQ AOL Instant Messenger technology, ICQ

Most of the Windows NT and XP operating Most of the Windows NT and XP operating systems, Microsoft-Israelsystems, Microsoft-Israel

VocalTec’s award-winning voice and VocalTec’s award-winning voice and audio compression technology audio compression technology

Given Imaging’s ingestible video camera Given Imaging’s ingestible video camera AND MANY MORE…AND MANY MORE…

Israeli Revenue-Israeli Revenue-driving Innovationsdriving Innovations

You quest we quote!You quest we quote!

Source for Source for TechnologiesTechnologies

“There are few places like Israel where one can find leading technologies in

almost every field.”Y. Hasson – Senior Vice

President

Nokia Venture Partners (London)

September 2003


The promised landThe promised land

““Land of Tech Promise - Again” Land of Tech Promise - Again” ““After years of a long slump, Israel is After years of a long slump, Israel is

seeing a slew of IPO’s, mergers and seeing a slew of IPO’s, mergers and new startups”new startups”

BusinessWeek, September 20, 2004BusinessWeek, September 20, 2004


Be Part of the FutureBe Part of the Future

““Outside the US, we invest Outside the US, we invest in only one other country. in only one other country.

That’s Israel.” That’s Israel.”

Julien Nguyen, Managing Julien Nguyen, Managing Partner, Partner,

Applied Materials Ventures Applied Materials Ventures September 2003September 2003

You quest we quote! You quest we quote!

Happy InvestorsHappy Investors

““If you liked investing in Israel in If you liked investing in Israel in the late 1990’s, you’ve got to the late 1990’s, you’ve got to

love it today –Same talent. love it today –Same talent. Same opportunity. Better Same opportunity. Better

prices.”prices.”

Stanley Gold, CEO Shamrock HoldingsStanley Gold, CEO Shamrock Holdings

Director of Walt Disney Company, July Director of Walt Disney Company, July 20022002


InnovationInnovation

““Israel is important to our Israel is important to our goal because it has goal because it has historically been a hotbed historically been a hotbed of new raw technology and of new raw technology and scientific developments.”scientific developments.”

Matthew I. Growney, Matthew I. Growney, Managing Managing Director Director Motorola Ventures Motorola Ventures September 2003September 2003

You quest we quote!You quest we quote! Good Things – Good Things – Small PackagesSmall Packages

““Israel is a small country with Israel is a small country with a tiny population, and yet it a tiny population, and yet it has many significant high-has many significant high-tech success stories.” tech success stories.”

Sven Lingjaerarde – Co-Founder & Sven Lingjaerarde – Co-Founder & General PartnerGeneral Partner

Vision Capital – September 2003Vision Capital – September 2003

You quest we quote!You quest we quote! Touched For The Very First Touched For The Very First TimeTime

““I would like to emphasize the fact I would like to emphasize the fact that I feel very safe and very that I feel very safe and very

welcome.”welcome.”

““Israel as safe as NYC”Israel as safe as NYC”

Madonna, a visit to Israel, Sep. 2004 Madonna, a visit to Israel, Sep. 2004

Incentives for R&D Incentives for R&D CentersCenters Tax relief program: “Tax relief program: “Cost Cost

++””

Three priority areas: A, B, Three priority areas: A, B, CC Area CArea C

Center of Center of IsraelIsrael

Area BArea Bpreferred preferred regions of regions of

IsraelIsrael

Area AArea Amost most

preferred preferred regions of regions of

IsraelIsrael

2 years - tax 2 years - tax exemptionexemption

6 years - tax 6 years - tax exemptionexemption

10 years - 10 years - tax tax exemptionexemption

8 years – only 8 years – only 10% taxes10% taxes

4 years – only 4 years – only 10% taxes10% taxes

National Priority Zone A

National Priority Zone B

Central Israel

Grant Benefit PathGrant Benefit Path Fixed asset benefit level pending Fixed asset benefit level pending

zonezone

Tax BenefitTax Benefit

Reduced Company Tax

10 Years Not Applicable

Tax Exemption

Israeli Investors

Foreign Inventors 8 Years

2 Years Not Applicable Not Applicable

5 Years 7 Years Not Applicable

Grant Program Priority Zone A Priority Zone B Priority Zone CCentralIsrael

Industrial Projects(Up to 140M NIS)Industrial Projects(Above 140M NIS)

20% 10% 10%

Priority Zone A Priority Zone BGrant Rates for Fixed

Asset

24% 10% 10%

Central IsraelCentralIsrael

Tax Exemption PathTax Exemption Path

Reduced Company Tax

Tax Program Priority Zone A Priority Zone B Priority Zone C

Tax Exemption 10 Years 6 Years 2 Years

Foreign Inventors Not Applicable 4 Years 8 Years

Israeli Investors Not Applicable 1 Year 5 Years

CentralIsrael

An example of the Tax An example of the Tax BenefitBenefit

0-49% 49-73% 74-89% 90-100%

64

Taxable Income

Company Tax

Balance

Percent of Enterprise owned by Foreign Investors

75 80 85 90

12 13 14

32% 28% 24%

20% 15% 10%

15% 15% 15%

100 100 100

Total Tax on Distributed income 52% 36%

Dividend Tax Percentage 25% 15%

Dividend Tax 16 11

100 100

36% 25%

Tax Benefit Example

Approved EnterpriseNot

Approved Enterprise

Government Support Government Support of R&D Expensesof R&D Expenses

Lower risk: The chief scientist of the Lower risk: The chief scientist of the Ministry of Industry Trade and Labor Ministry of Industry Trade and Labor can share up to 50% of R&D expenses, can share up to 50% of R&D expenses, in exchange to future royalties.in exchange to future royalties.

International Centers International Centers for R&Dfor R&D

About 60 foreign R&D centers are located in Israel

3535

State of IsraelState of Israel Ministry of Industry, Trade & LaborMinistry of Industry, Trade & Labor

Foreign Trade AdministrationForeign Trade Administration

Investment Promotion CenterInvestment Promotion Center

55 Bank Israel St., Kiryat Ben-GurionBank Israel St., Kiryat Ben-Gurion

Jerusalem, IsraelJerusalem, Israel

www.moital.gov.ilwww.moital.gov.il

[email protected]@moital.gov.il

Documents

Produce, Research & Develop The Israeli Advantage State of Israel Ministry of Industry, Trade & Labor Foreign Trade Administration Investment Promotion