Research

1
Research DevelopmentThe Israeli Advantage
State of Israel Ministry of Industry, Trade
Labor - Foreign Trade Administration Investment
Promotion Center
June, 2005
2
Main Indicators
2005
2001
2002
2003
2004
Inflation ()
2.4
1.4
6.5
-1.9
1.2
Unemployment ()
9.0
9.3
10.5
10.9
10.0
Imports ( billion)
44.4
33.3
33.1
34.2
41.1
Exports ( billion)
36.5
29.0
29.3
31.8
38.5
GDP ( billions)
123.7
109.5
102.7
109.1
117.2
GDP/Cap ()
17,848
17,180
15,468
16,312
17,200
May 2005
3
Investment climate in Israel Foreign Direct
Investment in Israel
??????? ?????? ?????? ?????
Millions USD
Source Bank of Israel
Not including traded securities
4
Investment climate in IsraelCapital Raised by
Israeli High-Tech Companies
5
Foreign Companies Invested in Israel- Some
Examples
US
Europe
Asia

• Microsoft
• Pratt Whitney
• AOL Time Warner
• Intel
• IBM
• Boeing Enterprises
• Cisco Systems
• GE
• Lucent
• 3Com
• Hewlett Packard
• Merrill Lynch
• Motorola
• Sun Microsystems

• Samsung Electronics
• Daewoo
• Nomura
• Hutchison Telecomm.
• LG Group
• Sony
• Toyo Ink
• Hyundai
• Acer Computers
• Sumitomo Trading
• Fuji
• Honda

• British Telecom
• Sap
• Philips
• Alcatel
• Siemens
• DaimlerChrysler
• Volvo
• Cable Wireless
• Deutsche Telekom
• Telecom Italia
• Generali
• LOreal
• Danone
• Unilever
• Villmorim
• Veolia

6
Investment climate in IsraelForeign Companies
Invested in Israel - Some Examples
USA
7
Investment climate in IsraelForeign Companies
Invested in Israel - Some Examples
USA
8
Investment climate in IsraelForeign Companies
Invested in Israel - Some Examples
USA
9
Investment climate in IsraelForeign Companies
Invested in Israel - Some Examples
ASIA
EUROPE
10
Investment climate in Israel Supportive Business
Environment

• Worldwide taxation and customs treaties
• Protection of trademarks, patents and
  intellectual property of all kinds
• Comprehensive legal protection of foreign
  companies
• State of the art telecommunications
• A highly advanced banking and financial sector

11
The World's Rising Innovation Hot Spots"
India
China
Russia
Israel
Singapore
Taiwan
S. Korea
RD Spending
1 OF GDP
1.2 OF GDP
1.2 OF GDP
4.7 OF GDP
2.2 OF GDP
2.3 OF GDP
2.9 OF GDP
U.S Patents
5,300
3,952
1,188
764
366
438
306
268
354
39
62
60
30
62
Israel's strengths Optical and wireless
communications, chips, software, sensors
BusinessWeek, October 11, 2004
12
Innovation climate in Israel Scientists
Technicians per 10,000 Workers
13
Innovation climate in IsraelEntrepreneurship
Source IMD World Competitiveness Yearbook, 2002
14
IMD World Report 2004
??????? ?????? ?????? ?????
Country Rank ?
1st
4th
2nd
3rd
Source IMD World Competitiveness Yearbook- 2004
15
WEF Competitiveness Report 2004 2005
??????? ?????? ?????? ?????
Country Rank ?
1st
4th
2nd
3rd
WEF The Global Competitiveness Report 2004
2005
16
Innovation climate in Israel Wall Street Journal
- 2004 Technology Innovation Awards

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

17
Innovation climate in Israel Patents

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

Israel - An annual increase of 20
Source BDI - Business Data Israel
18
Recent trends and developments Recent MA
19
Recent trends and developments Recent MA
20
Recent trends and developments Recent MA
21
Investment in Technologies
According to foreign investors, following the
Silicon Valley and Boston, Israel is the main
center to search for new technologies High Tech
Investments Q1-Q3 2004
Ernst and Young, October 2004
22
Major RD EffortsStretching 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 RD activities
• Digital wireless
• Satellite systems
• Broadband optical technology
• Internet Multimedia

• Telemedicine
• Microelectronics
• Network management

23
Recently Established RD Centers

• 18-December-2004 - Telynx (USA) -
  Data-processing, software and services Opening
  of a research and development center in northern
  Israel
• 18-December-2004 - BrainStorm (Canada) -
  Biotechnologies Announced a new research center
  in Kiryat Ha'Mada Ve Ha'Technologia
• 15-November-2004 - Huawei Technologies (China) -
  Data-processing, software and services
  Establishing 2m Israeli RD center
• 25-October-2004 - 3M (USA) - Drugs
  Minnesota-based giant, 3M, o invest in RD
  operations in Israel

Source ANIMA
24
Technology Start-ups

• Israel is one of the largest world centers for
  start-up enterprises, with 800 (year 2003)
  active start-ups.
• Innovative, technology-intensive activity,
  representing several technology breakthroughs.
• Major international activity
• Strategic alliances and joint ventures.
• Raising capital - venture, seed risk
  investments.

25
Venture Capital

• Investments by venture capital funds constitute
  an added value above financial contributions - in
  management, world market familiarity, strategic
  guidance and economic credibility.
• Capital raised by Israeli VCs Surges to 724m in
  2004
• Capital available for investment now at 1
  billion
• 1.5 billion projected to be raised by VCs in
  2005

Source IVC Research Center (2004)
26
Israeli Revenue-driving Innovations

• The cellular phone, Motorola Israel
• The Pentium MMX Chip technology, the Pentium-4
  microprocessor and the Centrino processor, Intel
  Israel
• Medinols minimally-invasive cardiovascular stent
  technology
• AOL Instant Messenger technology, ICQ

27
Israeli Revenue-driving Innovations

• Most of the Windows NT and XP operating systems,
  Microsoft-Israel
• VocalTecs award-winning voice and audio
  compression technology
• Given Imagings ingestible video camera
• AND MANY MORE

28
You quest we quote!

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

• Julien Nguyen, Managing Partner,
• Applied Materials Ventures September 2003

29
You quest we quote!

The level of entrepreneurship and innovation in
Israel is amazing

Promod Haque, Managing Partner, Norwest Venture
Partners, November 2004
30
You quest we quote!


To invest in Israel is to profit in the long term
Alan Hevesi, New York State Comptroller, October
2004
31
You quest we quote!


Land of Tech Promise - Again

After years of a long slump, Israel is seeing a
slew of IPOs, mergers and new startups

BusinessWeek, September 20, 2004
32
You quest we quote!

Israel enjoys the highest concentration of
high-thech companies in the world, out side of
Silicon Valley

Robert Greifeld, President CEO Nasdaq, November
2004
33
You quest we quote!

In two days here I saw more opportunities then I
saw in a year in the entire world

Paul Smit, Senior Vice President. Philips
Medical, July 2004
34
You quest we quote!

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

• Sven Lingjaerarde Co-Founder General Partner
• Vision Capital September 2003

35
Incentives for RD Centers
Tax relief program Cost Three priority
areas A, B, C
Area C Center of Israel
Area B preferred regions of Israel
Area A most preferred regions of Israel
2 years - tax exemption
6 years - tax exemption
10 years - tax exemption
8 years only 10 taxes
4 years only 10 taxes
National Priority Zone A
National Priority Zone B
Central Israel
36
Grant Benefit Path
Fixed asset benefit level pending zone
Grant Rates for Fixed Asset
Priority Zone A
Priority Zone B
Central Israel
Industrial Projects (Up to 140M NIS)
24
10
Not Applicable
Industrial Projects (Above 140M NIS)
20
10
Tax Benefit
Grant Program
Priority Zone A
Priority Zone B
Priority Zone C
Tax Exemption
2 Years
Not Applicable
Not Applicable
Reduced Company Tax
Israeli Investors
5 Years
7 Years
Not Applicable
Foreign Inventors
8 Years
10 Years
Not Applicable
37
Tax Exemption Path
Tax Program
Priority Zone A
Priority Zone B
Priority Zone C
Tax Exemption
10 Years
6 Years
2 Years
Reduced Company Tax
Israeli Investors
Not Applicable
1 Year
5 Years
Foreign Inventors
Not Applicable
4 Years
8 Years
38
Tax Benefits Table ( in )
Tax Benefit Example
Not an Approved Enterprise
Approved Enterprise
Percent of Enterprise owned by Foreign Investors
0-49
49-74
74-90
90-100
Taxable Income
100
100
100
100
100
Company Tax
34
25
20
15
10
Balance
66
75
80
85
90
Dividend Tax Percentage
25
25
20
15
10
Dividend Tax
16.5
11.25
12
12.75
13.5
Total Tax on Distributed income
50.5
36.25
32
27.75
23.5
39
Government Support of RD Expenses

• The Chief Scientist of the Ministry of Industry,
  Trade and Labor offers conditional RD grants of
  up to 50 of approved RD programs. If successful
  the developers are obligated to pay back
  royalties, up to the amount of the grant.

40
International Centers for RD

• About 60 foreign RD centers are located in Israel

AND MORE
41
Thank You!
State of Israel
Ministry of Industry, Trade Labor Foreign Trade
Administration Investment Promotion Center
5 Bank Israel St., Kiryat Ben-Gurion Jerusalem,
Israel www.investinisrael.gov.il
infoipc_at_moital.gov.il Tel [phone]
Fax[phone]