Attracting talent and companies is not an easy task for US cities and states. In the current labor market, American companies are outsourcing jobs to India, the Philippines, China, etc. In contrast, Israeli companies are moving operations to the US, bringing business in, attracting jobs, generating revenue for municipalities and supporting local businesses.
The International Herald Tribune published an interesting article on the trend of Israeli companies moving operations to the US. Starting around 2000, Israeli companies have made the strategic move across the pond: in northeast Ohio, 15 Israeli companies have opened up shop in the Cleveland suburb of Beachwood in the past four years, 25 Israeli companies opened headquarters in Silicon valley in the past 18 months, and 50 firms relocated to Atlanta, GA, drawn by support from the city’s American-Israel Chamber of Commerce, a sizable Jewish population and nonstop flights between Atlanta and Tel Aviv – and the move seems to be beneficial to all involved.
Key benefits to the Israeli companies:
*Access – Israel has the talent and tech resources, but a very small domestic market. Opening headquarters in the US gives the Israeli companies direct access to the US market, thus getting closer to their largest customer base and lowering operational costs.
* Financial Incentives – American cities and states are competing to become the new home for Israeli companies. For example, Simbionix Ltd, a leading manufacturer of virtual reality simulation products and solutions for the clinical education of medical students moved its headquarters to northeastern Ohio in 2002. In return, the company has received grant money from the city.
* Acting as ambassadors to Israel’s economy – In the last several years the Israeli companies that have relocated to the US have paved the way for many Israeli firms to also grow in the US market. For example, in Ohio alone several cities are working to attract additional Israeli companies:
- Akron – set up an “Israeli incubators” program with the goal of bringing Israeli companies to produce medical equipment for the city’s hospitals
- Columbus – plans a trade mission to Israel in the Spring
- Dayton – trying to conduct a similar trip with the goal of commercializing military sensors developed at Wright-Patterson Air Force Base
There are difficulties associated with relocation to the US: language and cultural differences as well as a substantial gap in time zone, which can really slow down the decision-making processes.
Benefits to the US and local American economies:
* Products – high-tech Israeli products such as the Simbionix’s simulators are manufactured and quickly deployed in the US. The medical students across America, utilize Simbionix’s virtual reality technology to improve their surgical skills.
* Jobs – The absorption of Israeli high-tech companies brings highly-skilled job opportunities to municipalities that otherwise may not have such jobs, such as Akron, Ohio. For example, since arriving in Cleveland in 2002, Simbionix’s U.S. employees have increased from two to 22, and a new office opened in Denver. Given Imaging, manufacturer of video-recording medical capsules that are swallowed to take images of the gastrointestinal tract, has grown to about 150 workers since it moved to the US in 2000 and EarlySense, developer of sophisticated monitoring technology for hospital care, is conducting tests in Boston and Cleavland as well. The list goes on.
* Taxes, economic rejuvenation & additional income – One of the main benefits for hosting an Israeli company is additional income to the state as each company needs real estate (property taxes), pays taxes (revenue for the IRS), buys office supplies (promotes local business) and so on.
And the forecast for Israeli companies migrating to the US looks good. U.S.-Israeli trade rose almost 50% from 2002 ($19 B) to 2006 ($30 B) and it has been growing rapidly this year as well (see my post on Israeli M&A and 2007 internet activity). Here’s to continued growth for US-Israeli trade in 2008.