fdi strategy for israel · 2.0 changing dynamics of invest promotion business 3.0 investor...

A project sponsored by the European Commission, MEDA Programme

FDI Strategy for Israel Investor Targeting program

Industry Clusters Development Policy and Performance Assessment

Report and Recommendations to Investment Promotion Center

Ministry of Industry, Trade and Labor

ANIMA Technical Assistance Mission David Brown

May / June 2006

ANIMA FDI Strategy for Israel

Technical Assistance Mission May 2006

2


Contents

Executive Summary 1.0 Context - Goals of Mission 2.0 Changing Dynamics of Invest Promotion Business 3.0 Investor Targeting 4.0 Cluster development methodologies and their role in investment promotion 5.0 Performance Measurement Criteria 6.0 Establishing a CRM System 7.0 Incentives 8.0 Framework for Aftercare Strategy

Annex 1 and 2



3


Executive Summary

The goals of the technical assistance mission, based on feedback from counterparts, were achieved;

The ANIMA consultant adopted a pragmatic approach to empathize with Invest in Israel then focused on providing practical assistance and sharing best practices with the aim of generating tangible results in the shot term;

The session on the changing dynamics of the investment promotion business drew the latest information available on outsourcing and on the prognosis on FDI trends to the attention of Invest in Israel;

Investor targeting culminated in identifying the world’s top 100 biotechnology companies and preparing a direct marketing template letter – featured within annex one;

The biotechnology theme was extended into the session on how to use cluster mapping to hone investor targeting – the Scottish biotechnology cluster model was shared with Invest in Israel;

The ANIMA consultant provided advice in setting performance related targets for every stage of the investment promotion business – from the national goal down to the investment promotion agency and the staff therein;

The ‘do’s’ and ‘don’ts’ of establishing a CRM system were drawn to the attention of participants. The ANIMA consultant concentrated on CRM outputs and recommended that ACT would be perfectly adequate for Invest in Israel’s purposes – especially considering that many international Israeli embassies have installed ACT.

Invest in Israel lacks sector studies and quality sector-specific promotional material – the ANIMA consultant has outlined contents of Terms of Reference for life sciences SWOTs and benchmarking - for outsourcing;

In terms of additional activity, the ANIMA consultant profiled the incentive regimes in selected competing locations; provided advice on developing and implementing an aftercare strategy and facilitated a self-assessment exercise benchmarking the institutional status of Invest in Israel to best international practices. The main short-term action points to flow from this exercise were:

o Introduce proactive investor targeting;

o Install investor tracking system;

o Introduce an aftercare program;

o Factor monitoring and evaluation into strategy; and

o Develop clear future operating and marketing plans



4


1. Context – Goals of Mission 1.1 The initial primary goals of the mission were to:- a) Help initiate investor targeting program; b) Explain cluster development methodologies and their role in investment promotion and associated policy advocacy activities; c) Help Invest in Israel (3 i’s) to set up and implement performance measurement criteria; d) Analyse output of activities over the last 2 years since re-establishing Invest in Israel; and d) Provide oversight regarding establishment of CRM (Customer Relationship Management) system. 1.2 Mission Outcome – additional activities Mission goals, based on the counterpart feedback session at the end of the mission, were fully realised. 1.2.1 Mission Highlights

Commitment of 3i staff and management to ANIMA TA mission – e.g. 100% attendance even on the last day which was a public holiday;

Progress made since last ANIMA mission (by consultant) November 2004 and competence of recent recruits;

Quality of website courtesy of ANIMA support – excellent platform but needs to be further populated with sector specific benefits vis-à-vis the competition;

Professional logo developed with excellent marketing slogan – ‘Where breakthroughs happen’;

3i’s pivotal role in securing multi-million $US biotech R&D project from Singaporean company SciGen and press coverage thereof;

3i’s role on the Steering Committee of major biopharma exhibition – BIOMED 2006 in Jerusalem;

Number of Ministry of Industry, Trade and Labor officials attending the ANIMA consultant launch presentation on the ‘Changing Dynamics of the Investment Promotion Business’;

Dynamism of 3i’s professional video clip which proved to be an excellent ‘curtain raiser’ at BIOMED, officially launched by the recently appointed Minister of Industry, Trade and Labor;

Both original mission goals and additional activity* mission goals realised (* explained under 1.2.3. below).

1.2.2 Mission – Causes for concern

3i has still not shifted from the reactive to proactive promotional mode; 3i is still seriously under-resourced to the point that it is very difficult for it to fully act

in accordance with its mandate; and



5


The implementation of an investor targeting strategy presupposes that the building blocks (like the sector benchmarking; sectoral promotional material and company databases) are in place – they are not – but this need is recognised which is reassuring.

1.2.3 Additional activities

Presentation to Ministry employees on Changing Dynamics of Investment Promotion Business;

Provided guidance on developing an aftercare strategy; Provided feedback on incentive regimes for other countries with which Israel competes

for mobile investment; and Provided guidance on outsourcing sector study and cluster mapping activities.

2. Changing Dynamics of Investment Promotion

Business The presentation on the above-mentioned topic represented the launch activity of the ANIMA mission. Based on 2005 FDI data, UNCTAD’s FDI prognosis, the breakdown of investment decisions in Europe and highlights of McKinsey’s most recent report on global services outsourcing, for which – as a recipient – Israel ranks forth in the world, the primary aim of the presentation was to assist Invest in Israel sharpen strategic direction by better understanding the shifting demand characteristics for investment locations. The slides, as with other relevant material, were copied onto one of Invest in Israel’s computers. Interestingly, Israel ranks as one of the world leaders in both the increase in FDI between 2004 and 2005 and the value of global outsourced business. However, in reality, FDI is predominately merger and acquisition driven with negligible influence, to date, by Invest in Israel. Moreover, coming from a low base can make the statistics look overly optimistic. Table One: Israeli FDI Growth Performance 2005 and Global Outsourcing Performance 2003 Growth in FDI 2005 v 2004: source UNCTAD (Source of Israeli data was Bank of Israel)

Offshore Services Market size 2003 $US billions: Source: Growth of Offshoring McKinsey and Co (2005)

1. South Africa ($ 7.2b - 803%) 2. Israel ($5.7b - 256%) 3. Indonesia ($3.5b - 242%) 4. Egypt ($4.1b - 226%) 5. United Kingdom ($219b - 182%) 6. Czech Republic ($12.5b - 181%) 7. Thailand ($3.7b - 159%) 8. Russian Federation ($26.1b - 109%) 9. France ($48.5b - 99%) 10. Turkey ($4.8b - 77%)

1. $12.2 billion India 2. $8.6 billion Ireland 3. $3.8 billion Canada 4. $3.6 billion Israel 5. $3.4 billion China 6. $2.3 billion Other Asia 7. $1.8 billion Latin America 8. $1.7 billion Philippines 9. $0.6 billion Eastern Europe 10. $0.5 billion Mexico 11. $0.4 billion Australia 12. $0.3 billion Russia 13. $0.1 billion South Africa



6


3. Investor Targeting Effective investor targeting is the hallmark of all professional IPAs. Although this topic has featured within repeated ANIMA initiatives, Invest in Israel does not engage in investor targeting. Nevertheless, the need to do so is well recognised and hopefully this ANIMA mission will provide the impetus needed to shift from the reactive to proactive mode. Investor targeting presupposes that the necessary hooks are in place to support such activity – hooks like an investment promotion strategy representing a route map towards clearly defined goals and sector specific marketing messages positioning Israel vis-à-vis the competition and substantiated by priority sector SWOTs and benchmarking analysis aimed at providing the bedrock marketing material. Those hooks are missing. Consequently, those key aspects were addressed during the T.A. mission. During the investor targeting workshop, the ANIMA consultant took Invest in Israel counterparts through every stage of an Aerospace investor targeting campaign he designed for the Czech Republic. It involved the world’s top 50 aircraft and aircraft component companies – the initiative is on-going but has already stimulated a response rate of over 25% which is quite exceptional (response measured in terms of potential investors requesting a visit and presentation by IPA executives). This exercise involved intensive market analysis and target company profiling including financial appraisals to assess the likely availability of financial resources to invest in new capacity. Granted, Invest in Israel is not currently resourced to take targeting to this level but the methodology adopted is as relevant to aerospace as it is to other key sectors for Invest in Israel, like life sciences, ICT and environmental technologies. The ANIMA consultant aimed at keeping the advice on targeting as practical as possible and recommended to initially focus of the biotechnology sector given that Israel’s factor conditions are high conducive to attracting increased biotechnology activities – particularly in relation to research and development. Moreover, Invest in Israel was acknowledged in the national press (during the ANIMA mission) as the key mediator in terms of persuading the Singaporean life sciences company, SciGen, to select Israel for a major R&D investment leading to the production of the next generation of hepatitis B vaccines and with associated investment up to $30 million. Encouragingly, Invest in Israel is sustaining dialog with senior representatives with the world’s largest biotech company, Amgen. The Office of the Chief Scientist (Ministry of Trade, Industry and Labor) has also been networking with selected international biotechnology companies and as a consequence, the ANIMA consultant recommends that future life sciences targeting initiatives be undertaken in tandem with the Office of the Chief Scientist. The life sciences profile commissioned by Invest in Israel and prepared by Gitam Porter Novelli represents a major step in the right direction in terms of producing target sector specific marketing material. It does not, however, calibrate Israel’s attributes against the competition – nor does it give potential investors an insight into the level, type, and value of activities being



7


undertaken by international biotechnology companies in Israel. For example, Invest in Israel needs to be in a position to articulate why life sciences R&D and production needs can be more competitively satisfied in Israel than in Ireland, the UK, the Netherlands, Germany or Singapore etc. 3.1 ANIMA Consultant Recommendations 3.1.1 Exercise One – Investor Targeting

Invest in Israel’s first proactive investor targeting exercise should focus on the world’s top 50 biotechnology companies – source of world’s top 100 www.answers.com/topic/list-of-biotechnology-companies

List to be screened to remove those companies with R&D and / or production facilities in Israel;

Write to the President / CEO of target audience adopting the biotechnology template letter drafted by the ANIMA consultant – refer to Annex One;

Invest in Israel, as stated, lacks professional sector specific downloadable brochures. In an ideal world SWOTs and international benchmarking analysis would have been undertaken prior to the investor targeting. This is not an ideal world. The life sciences profile ‘flyer’ will suffice until such time that analysis is commissioned to fully substantiate the selling proposition to feature in a life sciences brochure – in print and electronic format. This task needs to be outsourced. The ANIMA consultant has drafted the core components to feature within this sector benchmarking analysis – refer to Annex Two

The ANIMA consultant also recommends that a SWOT and international benchmarking analysis be commissioned for the ICT sector.

4. Cluster development methodologies and their role in

investment promotion While the ANIMA consultant provided an overview of the role host governments can play to provide the optimal business climate within which clusters can flourish and summarized the rationale for and benefits from successful cluster development, the main goal of the session was to explain, in practical terms, the role of cluster mapping to hone investor targeting. Once again, the sectoral focus was primarily, but not exclusively, on life sciences. 4.1 Case for Cluster Development Cluster development vacuums exist in Israel and Invest in Israel is not sufficiently resourced to fill such vacuums. Nevertheless, it is important for 3i management and staff to fully appreciate why the development of clusters should be fostered – i.e. for the following reasons:

Improve performance of individual companies; Increase innovation and new firm formation; Stimulate exports;



8


Attract higher quality inward investment; Exploit the science base/generate spill-over and better returns Create a process of cumulative development via externalities (e.g labour markets, critical

mass etc.); Develop new sources of not readily replicated, competitive advantage potentially

supporting higher incomes; and Focus policy and exploit regional synergies.

4.2 Adopting cluster mapping techniques to sharpen targeting First, the ANIMA consultant took participants, point-by-point, through the typical factor conditions needed to make a life sciences cluster grow – namely: 1 Strong Science base; 2 Entrepreneurial culture; 3 Growing company base; 4 Ability to attract key staff; 5 Availability of finance; 6 Premises & infrastructure; 7 Business support services & large companies in related industries; 8 Skilled workforce; 9 Effective networks; and 10 Supportive policy environment. With the possible exceptions of point 6 and 7, Israel boasts exceptionally strong factor conditions to sustain the growth of the life sciences cluster. An extensive cluster mapping exercise, however, is needed to identify the specific areas of activities which need to be strengthened to develop the cluster further but where the probability of securing such activities is more probable from an international as opposed to an indigenous life sciences company. In summary, given the extensive scale and frequency of biotechnology start-ups, there is merit for Israel to adopt the Scottish strategy for biotechnology sector development – i.e. the priority is to support domestic companies and thereafter target international companies to strengthen gaps or weaknesses within the cluster. Within that context, the example of the cluster mapping process below helps the IPA to identify the specific types of activities which should be attracted to the host country.



9


Table Two Scottish Biotechnology Cluster Mapping

Food/DrinkFood/Drink

HealthcareHealthcare

Final Final MarketsMarkets

ConsumablesConsumables

Support & Support & SupplySupply Infrastructure/ServicesInfrastructure/Services

Regulatory Regulatory FrameworkFrameworkMediaMedia Specialist VCs, Specialist VCs,

analysts, IPR & Legalanalysts, IPR & LegalResearch Research FundingFunding

ScotlandScotland ’’s Biotechnology s Biotechnology ClusterCluster

IncubatorsIncubators Rapid/secure Rapid/secure transporttransport

Contract Contract Manuf’sManuf’s

VetsVets

Equipment

Speciality Speciality chemicalschemicals

Health service Health service NHT, SBTSNHT, SBTS

AgricultureAgricultureFarmers, Farmers, breeders, breeders, seed seed co’sco’s

EnvironmentEnvironment

PharmaPharmaCo’sCo’s

Industrial gasesIndustrial Industrial gasesgases

Specialist Specialist inputsinputs

Research Research InstitutesInstitutes

CROsCROsR&D/clinical R&D/clinical trialstrials

Cluster Cluster CoreCore

SoftwareSoftware

InnovationInnovation

E.g. MiceE.g. Mice

XenoXeno --transplanttransplant

AnimalsAnimals

EnvironmentEnvironment

FoodFood

GenomicsGenomics

Development Development CompaniesCompanies

TherapeuticsTherapeutics

DiagnosticsDiagnostics

UniversitiesUniversities

No presenceNo presenceWeakWeakMediumMediumStrongStrong

Critical linkage Critical linkage -- strongstrong

Denotes key driverDenotes key driverCritical linkage Critical linkage -- weakweak

4.3 ANIMA Consultant Recommendations The ANIMA consultant recommends that Invest in Israel outsources life sciences cluster mapping to a university in partnership with appropriate life sciences association – without the skills and in-depth sector knowledge to pinpoint key drivers and calibrate the strength of linkages, the exercise could become rather academic and futile. 5. Performance Measurement Criteria To date, national FDI goals for Israel have not been well defined. The same could be said for Invest in Israel given that the operational goals of being instrumental in generating five company visits to Israel per year are rather modest and which may inadvertently explain why the Ministry is reluctant to provide Invest in Israel with much needed additional financial and staffing resources. The ANIMA consultant drew participants’ attention to the full range of performance criteria – from the national goal down to performance measures which, ideally, could be factored into job descriptions.



10


5.1 Setting National and Operational Goals for FDI The more ambiguous a country’s investment promotion performance target, the greater the element of doubt ministries and constituents will have in term understanding the aims and objectives of the host investment promotion agency. Arguably, this is the case in Israel where it is not entirely clear what Invest in Israel is trying to achieve in terms of stimulating and mediating investment flows. A strategy, as previously stated, is the route map to a given goal or goals. Consequently, an essential component in the development of an investment promotion strategy is to be clear from the outset on the goals that the strategy is aimed at realizing or surpassing – goals that should be challenging but realistically attainable. Conventionally, the following measures for monitoring FDI performance and setting FDI goals would normally be taken into consideration: • FDI flow as a percentage of GDP; • FDI flow per annum - $ billion; • FDI stock* - $ billion; • FDI flow per capita; • FDI stock per capita; • FDI percentage increase over a given period; • Jobs created per annum; • Percentage increase in jobs created over a given period; and • Applying those data sets to competitor countries; • Contribution by IPA towards national flow. * Cumulative flow Taking annual FDI flow as a percentage of GDP as a measure, top performing countries could achieve around 25% with ‘mid-performers’ like Chile, for example, running at circa 12.5%. Despite the record FDI flows into Israel in 2005 at $5.7 billion, this still only equates to circa 5% of GDP and represents a FDI flow per capita of circa $850 (simply consider that Ireland, in recent years, was achieving a flow per capita of $6,700). Insufficient data is available to quantify the contribution Invest in Israel made to the 2005 inflow which, admittedly, was mainly M&As. Nevertheless, professional reasonably resourced IPAs should be making a contribution to the annual flow of between 30% to 40%. Moreover, if the host IPA can not calibrate its contribution to the annual flow (i.e. projects mediated by the IPA) this will seriously undermine the agency’s ability to secure resources in the future. The most practical operational measures include: • Number of target companies with which dialog was established; • Number of sector-specific promotional events in target territories; • Number of company enquiring about the prospects for investing in Israel – i.e. ‘meaningful

enquiries’ as defined within the next chapter); • Number of company visits per month (at company’s location);



11


• Number of international companies visiting Israel / Invest in Israel on a monthly basis; • Stock of project interests in the ‘pipeline’ at any one time; • Number of aftercare client companies visited on a monthly basis; • Conversion rates between:- Enquiries to visits to Israel; Visits to Israel to decisions to invest in Israel; • Decisions to invest in Israel – in terms of fixed capital investment, new employment

opportunities and public announcement by investor. 5.2 ANIMA Consultant Recommendations If the goals set are too ambitious and unachievable, this will at best, frustrate staff members of the IPA and, more seriously, could undermine the reputation of the IPA. If, on the other hand, the goals are too modest, the IPA will inevitably find it difficult to justify requests to host governments to better resource the agency in terms of staffing, salaries and investment promotion activities. In suggesting the following goals, the ANIMA consultant has taken the size of Invest in Israel and the geopolitical situation into consideration: The national goals should be to sustain an annual flow of FDI per capita of $1,000; Within three years, Invest in Israel’s contribution to the national flow (i.e. projects mediated

by Invest in Israel) should be at least 30%; Invest in Israel should establish dialog with at least 1,500 international companies operating

within target sectors - per annum; Aim to develop a stock of project interests – i.e. an investment generation pipeline – of at

least 50 project interests at any one time; Increase current client company visits to Israel target by factor of 6 – i.e. to 30 company visits

to Israel per annum – thereby averaging two to three company visits to Israel per month; Aim at converting 25% of company visits to decisions to invest in Israel; and Instigate three to four international press / media visits to Israel per annum. 6.Establishing a Customer Relationship Management (CRM) System Data integrity is a critical component of any contact management and performance monitoring management system and, therefore, consistency of data entry is absolutely essential. Invest in Israel must reflect best practices in terms of inputting, monitoring and analyzing key marketing and performance data. This chapter seeks to set the ground rules for implementing best practices. The most common reason for CRM systems failure is the lack of management commitment to sharpening customer focus and inability to define the precise outputs needed from the system. As far as the options are concerned, there can be three main routes:



12


• Adopting a Microsoft product like Access or Excel to track customers; • Purchase ‘off-the-shelf’ CRM package like Goldmine or ACT etc… or • Develop a customized system on a robust platform … like Lotus Notes for example. The more marginal the benefits between two or three competing countries, the more that the quality of service from the host IPA can be a key differentiator in securing an investment decision. An effective CRM represents a useful tool which helps to sustain a consistently high quality of service and customer care, providing staff and management are fully committed to diligently recording the inputs to unlock the full potential of the CRM as a marketing and management tool. Given that ACT is one of the top CRM sellers, has been selected by several IPAs and that it has also been adopted by selected Israeli Commercial Attachés, the ANIMA consultant believes that ACT is more than capable of satisfying Invest in Israel’s CRM needs. In addition to better knowing and anticipating the needs of the target audience, a good CRM should also facilitate the IPA’s key reporting needs. The next section looks into this in more detail by helping to clarify definitions to ensure data integrity as the CRM system becomes more populated. Monthly progress reports, covering the suggested goals outlined within section 5.0, can readily be designed to be generated from the CRM. 6.1 Reports and Procedures 6.1.1 Definitions It is too easy to be distracted by definitions and terminology and forget what Invest in Israel really needs from any management information system – the agency’s mission is to secure decisions from clients to invest – ‘decisions’ are a key measure of Invest in Israel’s success. Given the clear correlation between the extent and quality of Invest in Israel’s marketing and project management activities and achieving tangible results, it is essential to view investment promotion as a process. Consequently, each stage needs to be carefully monitored to help ensure that conversion between project interests and decisions is maximized. Therefore, the Director must be very well informed, on a monthly or weekly basis, about the primary indicators of Invest in Israel’s achievement and performance levels. When developing a contact management program, or any other type of management information system, it is essentially to start by defining what the principal outputs must be. Within the Invest in Israel context, the key measures of performance and activity levels are:

1) Meaningful Enquiries received and how they were generated (in order to refine and realign the marketing strategy if necessary);

2) Visits to client (at their facility); 3) Visit by prospect company to Israel; 4) Value of local sourcing and number of companies assisted (activity for subsequent phases

of development); 5) Decisions to invest.



13


6.1.2 Definition of Enquiry It is important to calibrate the quality of an enquiry and to discount all the enquiries that are of little substance along with those that have very limited prospects of actually materialising – therefore – it makes sense for Invest in Israel to focus on recording meaningful enquiries – the definition of ‘meaningful’ is specified below. 6.1.2.1 Meaningful Enquiry ‘Expression of interest in investing* in Israel and / or competitor location within a 30 month period by a company or individual with a proven track record and sufficient resources to facilitate the investment.’ (* Investing = greenfield; brownfield; joint venture; subcontracting; sourcing; acquisition and covers both manufacturing and servicing) 6.1.2.2 Definition of Project Invest in Israel is under pressure to perform – the more successful the agency becomes, the greater the level of expectation ministries and the electorate have of Invest in Israel in terms of attracting foreign direct investment. To enhance performance, Invest in Israel must decide where to focus its time and energy to maximize results. Foreign investment, like many other businesses, has its share of time-wasters and ‘parasites’ and a failure to identify them early will place an unnecessary burden on the organization. To improve the conversion rate between projects and decisions, it is essential to be able to both define and calibrate what is meant by ‘project’. The IDA in Ireland tended to categories a case as a project when the company actually visited Ireland. In Scotland, the classification took place earlier in the process as many executive hours can be devoted to actually securing the country visit. Invest in Israel should define a ‘project’ as follows: The development of a meaningful enquiry to the point where:

• Company has a genuine interest in investing in Israel and /or competitor location within a 30 month period;

• projects parameters have been clearly defined; • timeframe to decision has been specified; • the company has the resources (financial and management) to facilitate the investment; • Invest in Israel has established dialog with decision influencers and makers; • the probability of the project materialising is realistic;…. and • the subsequent investment would positively impact on the Israeli economy.

6.2.3 Definition of Decision The definition seems self-explanatory yet governments and IPAs are frequently premature in claiming a success. A decision by the Ministry of Finance approving the granting of investment incentives to a company is not a firm decision to invest nor is the official granting of a concession.



14


What constitutes an actual decision is when the company ‘publicly announces’ its decision to invest in Israel. 6.2 Principal Reports 6.2.1 Invest in Israel - Investment Promotion Strategy Invest in Israel lacks a coherent strategy which represents a clear route-map to well defined goals. The ANIMA consultant suggests that the lessons learnt from the ANIMA investor targeting training should be incorporated within a start-up strategy concentrating on the period from July 2006 for six months and which would represents a precursor for a three year investment promotion strategy that should be drafted (possibly with ANIMA or donor support, by November 2006). Essentially this will represent a national strategy for investment promotion with the prime responsibility for implementation resting with Invest in Israel. This strategy should include an Operating and Marketing plan matrix to be undated and realigned every year. Moreover, this would represent the main ‘resource bidding tool’ to be submitted to Government for additional resources. 6.2.2 Operating and Marketing Plan Matrix All action programs should flow from the Investment Promotion Strategy. On a yearly basis, Invest in Israel should prepare a detailed Operating and Marketing Plan defining specific actions and initiatives along with associated costs in sufficient time to submit the claim for Government and donor funding. Moreover, the strategy will define priorities and set targets and milestones in relation to which performance can be measured and evaluated. 6.2.3 Progress and Performance Reports 6.2.3.1 Reports for Ministry of Industry Trade and Labor The reports should track Invest in Israel’s progress towards achieving the goals presented in the investment promotion strategy and the operational goals, normally in terms of marketing activity measures, specified in the annual operating and marketing plans. The Ministry of Industry plus other key constituents on whom Invest in Israel depends should, electronically, receive a one or two page monthly progress summary plotting progress against the strategy and action plans – providing clear indication of promotional activity levels and business generated – underlining major developments – summarizing obstacles encountered and suggesting the best way forward – outlining priorities for next period. Once a CRM system is fully functional most of the statistical data needed can readily be generated from the CRM ….. ergo, this is not a labour-intensive activity. The ANIMA consultant suggests that the Ministry of Industry should receive a more comprehensive Progress Report on a quarterly basis – this will elaborate on the points raised immediately above.



15


6.2.3.2 Internal Reporting Invest in Israel is a lean ‘virtual’ IPA and with only four senior executives and one administrative assistant there is obviously a need to ‘multi-task.’ Nevertheless, the ANIMA consultant recommends that each executive be assigned to playing a lead role for one of the following principal tasks:

1. Marketing – investment generation; 2. Investor servicing; 3. Strategic Projects (e.g. environmental and water technologies); and 4. Aftercare.

The senior executives should submit short but factual monthly progress and performance reports to the Director within five days of the end of the month. It should cover planned activities for the period; extent to which planned activities were realised; data specified within section 6.1 above and activities planned for the next period. 7.Incentives Activities regarding incentives did not feature within the original TOR. It has been added, as indeed the next section on aftercare has, in response to the request from the Director of Invest in Israel. More specifically, Invest in Israel wanted to be in a position to benchmark the Israeli incentive regime with the level and type of incentives being offered in competing locations – particularly in Western and Central Europe. 7.1 European Incentive Regimes This section reviews four regimes – United Kingdom, Ireland, Germany and the Czech Republic. In capsule summary both the UK and Ireland adopt a discretionary approach which makes it difficult to ascertain the average level of support. In all probability, the most generous incentive package on offer in Europe is likely to be in the former Eastern part of Germany. The Czech system, designed and administered by the investment promotion agency CzechInvest, comprises two programmes (manufacturing and business support services -including technology centres) is profiled and, in general, typifies the level of support in Central Europe. There is a tendency to play down the importance of incentives in FDI attraction – even the President of Peugeot, Mr. Jean-Martin Folz, during the press interview at the ‘ground-breaking’ of their new €1 billion plant in the Czech Republic, said that the incentives were not so important. The OECD and World Bank, generally, take the line that fiscal incentives are seldom crucial to the investment decision and that incentives are offered to companies, which in all probability, would invest anyway. This is certainly true for countries which lack most of the inherent attractions foreign investors seek, but given that Israel’s main competitors still offer incentives, an uncompetitive incentives regime would represent a significant barrier to FDI.



16


FIAS (Foreign Investment Advisory Service – a joint facility of the World Bank and IFC) is also not in favour of tax incentives and has evidence to buttress this stance. However, their research / experience underlines that where the location choice is for an ‘export platform’, foreign direct investors are more likely to be affected by tax incentives. This is precisely the case for Israel with its comparatively small domestic market. Of the top 10 factors influencing the investment location, the provision of financial incentives, in most major surveys, has a middle ranking. Most investment in new manufacturing or, indeed, R&D capacity presents the client with a large ‘cash flow’ bubble until the unit is generating income. Decision makers seek incentives, of one form or another, to help deflate this bubble. The Czech Republic was that last country in Central Europe to introduce incentives. Commendably, it sought first to improve the investment climate before doing so. Within two years of introducing incentives (in 1998) FDI flows had increased by 400% while the overall flow into Central Europe, for the same period, increased by 20%. 7.1.1 United Kingdom • Regional Selective Assistance (RSA) is a discretionary grant providing financial assistance

to projects with fixed capital costs of over $750,000 which create or safeguards employment in Assisted Area;

• RSA covers both manufacturing and service activities; • The amount and terms of the assistance is negotiated as the minimum necessary for the

proposed project to go ahead (negotiation skills for project managers in the respective IPA are important);

• Maximum grant was normally set at 20% of fixed project costs but, in recent years, the average cost per job has come down to around $6,000.

7.1.2 Ireland • Ireland argues, within the promotional material, that a key to creating a favourable

investment climate has been the 12.5% corporation tax – for manufacturing and services; • The IDA offers, what it describes as, ‘generous grants towards initial start-up costs.’ This

covers capital grants, employment grants, training grants and R&D grants; • Like the UK, the scheme is discretionary – hence cost per job varies significantly.

Historically, grants approaching 40% of fixed capital costs have been offered. 7.1.3 Germany For a transnational company investing in one of the New German States, grants up to 35% are available - for SMEs this threshold is extended to 50%. Essentially, the minimum investor down-payment is 25%. When R&D and training grants are taken into consideration, the net grant equivalent, even for larger companies, can be close to 50% of fixed capital costs.



17


7.1.4 Czech Republic As stated, it was Invest in Israel’s equivalent, CzechInvest, which designed and administers the two programmes profiled below. Both investment incentive programmes are EC compliant. Part One – Manufacturing Offered Incentives • Full tax relief for 10 years (newly established companies) • Partial tax relief for 10 years (expanding companies) Job-creation Grants • $8,400 per employee in the district with the highest unemployment rate (A)* • $4,200 per employee where unemployment is at least 25% above the average (B) Training and Re-training grants • 35% of the costs of the training in the regions where the unemployment rate is higher than

the country’s average (A, B & C). *The country is split into four bands A, B, C and D, depending on unemployment – Prague qualifying for the least amount of assistance. The total amount of incentives (with the exception of the training and re-training grants), must not exceed 50% (65% in the case of SMEs) of the investment made into long-term tangible and intangible assets. Eligibility Criteria Districts according to unemployment A (i.e.

highest) B C D

Minimum Investment - $ million $4.2 m $6.3 m $8.4 m $8.4 m Minimum coverage by own equity $2.1 m $3.2 m $4.2 m $4.2 m Minimum % of total investment in machinery 40% 40% 40% 40% Part Two – Technology Centres and Business Support Services Forms of Support • Subsidy to Business Activity

o Up to 50% of the eligible costs, which are:- Investment into tangible and intangible fixed assets purchased within the first 5

years…….or Two-year salaries of employees employed within the first three years.

• Subsidy for training and re-training o Subsidy up to 35% of the specific training costs and 60% the general training costs.

Maximum subsidy of $4,200 or $6,300 for one job position, depending on the number of job positions created.

Eligibility Criteria – as defined within table below….



18


Eligibility Criteria Type of project • Technology Centres

• Software Development Centres

• Expert Solution Centres • Headquarters

• Call Centres • High-tech Repair Centres • Shared Services Centres

(Except HQ operations)

Minimum Investment $630,000 $1,260,000 Min number of newly created jobs

15 50

Amount recipient must finance with own resources

$315,000 $630,000

Linkages Results of technology centre should materialize in production

8. Framework for Aftercare Strategy Aftercare is the provision of services offered by an IPA aimed at: • Facilitating new investment; • Encouraging and anchoring incremental investment; and • Providing the factor conditions to encourage existing investors to upgrade their activities. As the President of Ford UK once reported….. ‘It costs six times more to win a new customer compared to retaining an existing one.’ Moreover, over 60% of FDI being generated within the main recipients of FDI in Western Europe is courtesy of existing investors expanding. Perception of the host country represents a key trigger for investment – when potential investors witnesses existing investors expand, this positively impacts on perception. During the Technical Assistance mission, the ANIMA Consultant profiled the aftercare strategies adopted in the United Kingdom, Ireland and the Czech Republic. 8.1 ANIMA Consultant Recommendations The ANIMA consultant recommends the following actions:

The completion of the foreign investors in Israel database be outsourced; Invest in Israel, at least for the initial phase and given the limited resources, launches an

aftercare program focusing on 50 to 60 foreign or partially foreign-owned companies operating in Invest in Israel’s target sectors;

The main goal should not be routine problem solving or hand-holding post decision. Rather, the overriding aim should be to stimulate and anchor incremental FDI that maximises net economic gains to the Israeli economy and to encourage existing investors to upgrade their activities in Israel;

More specifically, Invest in Israel should:



19


Maintain accurate contact details / profile of target audience; Establish and sustain dialogue with target audience – at least once within 12 month

period; Identify companies in expansion mode to help anchor investment; Network with subsidiaries and / or parent group in search of higher value added

manufacturing and/or R&D operations; Identify and exploit ‘up-stream’ and ‘down-stream’ investment opportunities to extend

and anchor the ends of the value chain within a specific sub-sector; Understand and calibrate target audiences legitimate problems and then advocate policy

changes to improve the investment climate; and Help provide advanced monitoring of projects in receipt of incentives.

-End-



20


Annex One – Biotechnology mailing letter Mr. Brian McNamee CEO and Managing Director CSL Ltd. 45, Poplar Road Parkville Victoria 3052. Australia June 6th 2006 Dear Mr. McNamee, R&D opportunities in Israel To consolidate your global leadership position, you may find that your life sciences research and development needs can be more competitively satisfied in Israel than elsewhere. The country is in the vanguard of innovation and entrepreneurship. Moreover, Israel has the highest rate of R&D investment in the world as a percentage of GDP. Already hosting 700 life sciences companies, Israel’s factor conditions are in place to sustain high growth. Those include the highest ratio of university graduates per capita in the world, internationally renowned centres of excellence, an extensive venture capital market and a business climate conducive to competitive innovation. Singapore based, SciGen’s recent decision to establish a multimillion $US R&D facility within close proximity to the world class Weizmann Institute of Science, bears testimony to Israel’s exceptional intellectual capital and efficient academic interface. SciGen has secured the worldwide rights to a third generation hepatitis B vaccine developed in Israel. The Israeli Government seeks to strengthen the cooperation with CSL and to that end, Invest in Israel, the investment promotion arm of the Government, in tandem with the Office of the Chief Scientist, has prepared a short presentation articulating why and how CSL would benefit from increasing R&D activities in Israel. Might I suggest that you nominate senior management to whom we can deliver the presentation and sustain mutually beneficial dialog thereafter. Yours sincerely, Mrs. Rachel Roei-Rothler Director, Invest in Israel



21


Annex Two – Sector Specific TOR for (Life Sciences) SWOT and Benchmarking Analysis I. Background This intro should profile Invest in Israel; outline goals; articulate why life sciences has been shorlisted as a target sector for 3i and should encapsulate Government policy preferences which impact on the sector……..etc etc… II. Key Objectives of Assignment The key objective of the assignment is to answer the question – why should international life sciences companies engage in R&D and / or production in Israel as opposed to other main recipients of life sciences investment? – like the United Kingdom, Ireland, the Netherlands. Germany and Singapore…. etc. The consultant will assess Israel’s ability to compete for and secure mobile foreign direct investment, within the life sciences sector, by undertaking sector specific SWOT analysis and, most importantly, by benchmarking Israel’s attributes against its main competitors within this segment. The consultant will also pinpoint intrinsic factors that discourage investment, within the sector, to trigger the appropriate actions and policy advocacy, on the part of Invest in Israel and the Ministry of Industry Trade and Labor, to improve the investment climate and thereby Israel’s competitiveness. III. Scope of the Work Foreign Investment Promotion From the sector specific SWOT and benchmarking, the consultant will identify and substantiate the key marketing message to provide the ‘bedrock’ high quality promotional material to underpin the targeting process and to feature in printed and electronic form. The production of the sector brochures and other promotional material is outside the scope of this contract. The ANIMA technical assistance has significantly helped Invest in Israel pinpoint the target audience, develop the skills to anticipate and respond to the needs of investors and has articulated best practice marketing techniques to approach potential investors within this priority sectors. However, the goals of the program can only be fully realized when the agency is in a position to:

a) Give the target audience compelling and credible reasons to invest; and b) Demonstrate to client companies that their R&D and production needs can

be more competitively satisfied in Israel than elsewhere.



22


The consultant is tasked with developing a sector study covering life sciences which fully complements existing material. The consultant is expected to review available existing sector specific SWOT data and to effectively network with other agencies, ministries, associations and academia which are particularly active in terms of supporting programs aimed at enhancing Israel’s competitiveness and economic efficiency. The general task, in terms of preparing the sector specific SWOT and benchmarking, will include the following:

• Brief International, European and Far Eastern overview of investment trends within the sector;

• Mapping of Israel’s resources within life sciences; • Profile of sector’s existing contribution to Israeli economy, e.g.-

Total sales generated within sector; Value of exports; What percentage of Israel exports? Destination of exports; Value of imports; What percentage of manufacturing output? What percentage of production and R&D activities foreign owned? Total number of employees within the sector.

• Profile of top ten to twenty companies operating within the sector in Israel, highlighting, where possible, the extent of foreign ownership;

• Development of six case studies on successful foreign investments (if possible) – with positive testimonials that can underpin the marketing message;

• Historical summary, factors fuelling the growth of the life sciences cluster in Israel;

• Identification of key strengths and opportunities; • Detailed examination of the intrinsic factors that can promote investment; • Labor skills audit by sector; • Labor costs combined with on-costs for which the employer is responsible

– broken down into unskilled, semi-skilled, middle management and senior management categories;

• Linguistic skills – what percentage of the working population can communicate in English, German and French languages?;

• Define intellectual capital both in quantitative and qualitative terms – for example – what percentage of graduate output is science and engineering related? - what is the total student population (universities and technical universities)? - what is the graduate output per year and what percentage of this output remains in Israel?



23


• Taking productivity as output per person employed, the consultant, if possible, should benchmark the productivity gains foreign investors are making in Israel (given the lack of quality data, this is a difficult task - nevertheless, Invest in Israel must be in a position to provide indicative productivity levels when quoting salary costs which, alone, would be comparatively meaningless to most investors without a productivity measure)

• Percentage of companies operating within the sector with international quality standard accreditation;

• Cost efficiency – competitive advantage, at least at the current status of Israel within the investment promotion cycle, is, according to Harvard’s Professor Michael Porter, achieved through a strategy of either low cost or product differentiation. Israel needs to go down the product differentiation route. Consequently, every opportunity must be taken to benchmark cost efficiency with the competitor countries mentioned;

• Given that the protection of intellectual property rights is of paramount concern to life sciences investors, the status of IPR protection in Israel should also be benchmarked with competing locations;

• Review of incentives available and assessment of the extent to which they are competitive with development packages offered with key competing locations; and

• Overview of the current and probable supply of greenfield and campus / technology park property options available capable of meeting the property demands of mobile investors.

The consultant is reminded that the outputs must provide the bedrock selling proposition to help demonstrate to the target audience that their design, research & development and production needs can be more competitively satisfied in Israel than elsewhere. IV. Qualification of the Consultant(s) The consultant(s) must meet or exceed the following qualifications:

• Previous experience in undertaking sector specific SWOT analysis and benchmarking focusing on foreign investment and export potential – specifically for emerging market economic investment and export intermediaries – i.e:- economic development agencies and investment promotion agencies, etc;

• Competent local and international experts with extensive experience in the field of investment promotion and export development;

• In-depth knowledge of both the Israeli economy and of the life sciences sector and the factors impacting on its growth; and



24


• Access to international networks for effective benchmarking and the ability to maximize local sourcing, either directly or courtesy of partnerships with domestic firms and / or institutions.

V. Reporting Arrangements and Deliverables The consultant will be expected to submit the following deliverables:

• An action plan within four weeks of the start of the assignment; • Regular short (written and/or verbal) reports to Invest in Israel Director on

a timetable and regularity agreed at the start of the contract; • A full and detailed report on the results of the sector specific SWOT and

benchmarking - delivered during a workshop at a time to be agreed; • Recommend follow-on work to enhance competitiveness within the target

sector for investment promotion and in terms of further improvements needed to enhance the investment climate; and

• All materials, reports and studies collected in the course of this commission that Invest in Israel will find beneficial.

VI. Budget, Timing and Supervision Consultants are invited to tender in strict accordance with Israeli Government procurement procedures. The consultant will report formally, for the duration of the assignment, to the Director of Invest in Israel or appointed project manager. It is envisaged that the sector specific SWOT and benchmarking will commence early xxxx and that the proposed outputs would be delivered by the beginning of xxxx 2006.

fdi strategy for israel · 2.0 changing dynamics of invest promotion business 3.0 investor...

Documents