Orna Berry – charting a course for Israeli business

Israel’s high-technology sector grew from 5 to 15 percent of GDP in the 90s.Israeli companies should mimic the best of the large U.S. multinational companies in diversifying their products and services in order to insulate themselves from downturns and expand …

Israel’s high-technology sector grew from 5 to 15 percent of GDP in the 90s.Israeli companies should mimic the best of the large U.S. multinational companies in diversifying their products and services in order to insulate themselves from downturns and expand their markets, according to former Israeli Chief Scientist Orna Berry.

These measures would also help protect the overall Israeli economy and strengthen a mutually beneficial trade symbiosis with other countries, principally the United States, she said.

Berry’s analysis, delivered in a presentation to business executives in California’s Silicon Valley Aug. 9, comes on the heels of a huge expansion of high-tech investment and business development in Israel beginning in 1992 and the downturn that followed since late 2000. The event was sponsored in part by the California Israel Chamber of Commerce.

Berry is a venture partner in Gemini Israel Funds, a venture capital partnership that invests in Israel, and is active in promoting international trade and marketing and research partnerships with Israeli companies.

Berry said smaller Israeli companies could grow into larger multinationals through increasing partnerships with U.S. companies and through acquisitions of smaller overseas companies. The partnerships and acquisitions would help these companies sell more of their products in the United States and in other countries and would, in turn, help Americans benefit from greater exposure to low-cost technical innovation from Israel’s highly productive research infrastructure.

“Partnerships yield combined products targeted for large market segments and a competitive edge in the mix of tech and marketing,” Berry said. “(We’ll get) wider offerings and larger expertise.”

Berry said this push towards diversification and market expansion, if it occurs, will be increasingly directed towards the United States, to the benefit of both countries, principally because Israel’s trade relations with the European Union have been deteriorating. The United States now accounts for 40 percent of Israel’s trade that’s not related to defense, while the EU has declined to 40 percent from its previous high of 50 percent.

Since Israel is a major producer in a tiny domestic market of about six million people, globalization, the opening of local markets to international markets, “means a lot,” Berry said.

“Like Singapore and Taiwan, Israel needs to define itself as part of the global market,” Berry said.

Berry’s analysis comes as Israel and the United States are struggling with a worldwide economic slump, which has manifested itself most clearly in both countries in the downturn in high-tech sales, investment, employment and market valuations.

The slump has hit Israel hard, principally because the economy was being driven by smaller companies in the tech sector, and because it began at the same time as the conflict with the Palestinians rekindled, Berry said.

These smaller companies experienced a rise in sales during the tech boom that quickly declined when demand for new technology fell off. In the future, Israel needs companies involved in a wider array of markets and market sectors in order to avoid this syndrome, which accelerated the downfall of the nation’s general economy, Berry said.

“Because of globalization, sales of high-tech gear went from 5 percent to 15 percent of GDP and pulled Israel out from where it was at the beginning of the 90s,” she said. “But, GDP became volatile because of dependence on a single business sector.”

Berry cited Teva Pharmaceuticals, the Israeli drug manufacturer, as an example of a company with a diversified portfolio and large presence in overseas markets that other Israeli companies should emulate. Teva is the developer and manufacturer of Copaxone, a therapy for multiple sclerosis that sells well in the U.S. market, and manufactures and sells a host of money-saving generic drugs to the United States.

“Teva suffered (from the slump), but was able to immediately shift gears and bounce back,” Berry said. “It’s increasingly acquiring companies and increasing sales, while Israeli startups typically experience an increase in sales followed by a decline.”