India,Israel and Innovation

Many years ago my colleagues and I provided consulting services for an Israeli hi-tech product company. The company wanted to hire high-quality software engineers from India.

However, Indians were reluctant to work in Israel because of the perception of lack of security. Finally, an innovative solution was found. The company established a development centre in Cyprus. The recruitment ads had pictures of the blue sea and the lovely beaches of Cyprus. Many software engineers were recruited, offered induction training in India and sent to the Cyprus centre, which had a dedicated communication link with Israel.

On my visit to Israel earlier this month, I discovered that the same company had set up a development centre in India.

Things are not the same now.

Fifteen years since the establishment of diplomatic relations between India and Israel, both the countries have moved closer economically. I realised, however, that mainstream Indian entrepreneurs and policy makers do not yet see the long-term potential of collective opportunities. They are yet to focus on synergies that may emerge if we combine the advantages of India and Israel — focusing on innovation with a big I.

Israel has changed. It is no longer merely an exporter of Jaffa oranges and agricultural products. It has turned the adversity of its lack of natural resources into the triumph of becoming tech savvy. Lack of natural advantages has compelled Israeli scientists and businessmen to be innovative and creative.

However, the official statistics of trade between India and Israel do distort the big picture a bit. The largest com modity that Israel sells and buys from India is diamonds.

This trade constitutes a round trip for diamonds that come to India for cutting and polishing, and return via Israel to the ultimate buyers. Since neither Israel nor India are producers of rough diamonds — peeling of the “Cyprus” layer in the business model may make more sense for both countries. In the long run, a virtuous quadrangle of IsraelSouth Africa-India-USEurope value chain may make more sense with cutting and polishing centres located in India. Israel’s guanxi in the diamond trade will continue to add value.

The second but much less talked about strategic partnership is in defence technologies. It is believed that more than 30 per cent of Israel’s defence-related technology exports is to India alone.

Thus, there is a mutual dependence in a strategic sector, which is the core to stable trade relations.

Many colleagues in Israel said the secret of Israel’s success in the hi-tech sector is its innovation engine. It is the ability to harvest academic research into commercially viable products and its willingness to plough back funds to academic institutions for further research. Israel has thus far converted cutting-edge technologies into commercial products with annual revenues in excess of $7 billion.

The country is third in the world in patents per person after the US and Japan. Over 50 per cent of these patents are in life sciences, bio-technology and medicine. Israel also has a vibrant Silicon Valley-type eco-system in which start-ups thrive.

Some of us are familiar with Israel’s drip irrigation system. What is less well known is the country’s high productivity in agriculture and fruit production. According to Food and Agriculture Organisation reports, Israel outflanks India by a factor of three to 10 in productivity, when measured in kg per hectare in the production of apples, bananas, grapefruits, guavas, mangoes, lemons, oranges and papayas.

India is transforming her agrarian economy into an industrial one. But its agricultural productivity is low.

Industry alone will not reduce poverty. Productivity in agriculture will have to leap-frog to be an important component of inclusive growth. While India is more fortunate than Israel in terms of water resources, it is estimated that there are 690 hundred thousand hectares of land in India where drip irrigation, use of sprinklers and advanced irrigation solutions can enhance our food production. Israeli firms are also advanced in renewable energy and water solutions technologies, and we can innovate together.

Israel is also quite advanced in nano science and technology. In 20 years, it is estimated that the market for nano products will exceed $1trillion. While India set up a nano mission with an allocation of $250 million over five years in 2007, Israel has made huge investments in nano infrastructure and product development. Several academic institutions like Tel Aviv University, Weizmann Institute, Hebrew University and Technion-Israel Institutes of Technology are engaged in research. In India, there are 11 centres of nanosciences, and there is much merit in connecting the institutions and the scientific communities of both countries.

Today, we are doing very well in bio-pharma and are acknowledged as an integral part of the global pharma value chain. Israel and India have much to gain in expanding cooperation in this sector.

India has not yet fully played to its strength in the semi-conductor design industry. But the future of fabless design is bright since the key driver of growth in this sector is talent — with which India is endowed in abundance.

Cooperation in semi-conductor R&D is a candidate for a US-India-Israel triangular cooperation. This will not simply lead to commercial products for local applications, but also for global markets, primarily in the US and Europe, apart from India and China.

The writer is the MD of Deloitte & Touche Consulting India Private Ltd. These are his personal views.