Israel’s efforts to strengthen innovation in traditional industries

Submitted by Robert Koch on 19 January, 2012 - 14:11

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Israel

Back in 2008, the State of Israel had started a national programme to support innovation within the traditional industry. The programme resulted in a significant increase in R&D low-tech and medium-low-tech projects, which were partly funded by the Chief Scientist Office (CSO), a technology agency of the Ministry of Industry, Trade and Labour. In 2011, 251 project proposals were submitted and 156 were finally approved, with a total funding of about € 40 million (up from 51 projects and funding of € 16 million in 2008, the first year of the programme).

In order to raise awareness among traditional industries and encourage their use of the unique support mechanism, the CSO is now providing extensive consultancy to the firms. The consultancy is rendered by the CSO's representatives arriving to the firms' headquarters and assisting them in planning, designing and implementing the necessary measures for a successful innovation process.

The programme was initially launched in response to significant disparities in growth between the high-tech sectors and the traditional industries. A committee headed by Israel Makov (former Chief Executive Officer of Teva Pharmaceutical Industries) had proposed possible measures to enhance growth within the medium-low and low tech industries. These industries included the following sectors: mining and quarrying, textiles, wearing apparel, leather products, plastic and rubber, metals, mineral products, iron and steel, wood, furniture, paper, printing, tobacco, food and alcoholic beverages.

According to the Makov report, the Israeli economy had developed into a "bi-polar" economy. While the Israeli High-Tech sector has enjoyed a positive growth trend during the past 20 years, Israel’s more traditional sectors have been lagging behind. Leading economic indicators, such as GDP per worker, capital per worker and the level of R&D intensity posit Israel’s knowledge-based sectors at par with other prominent developed countries. However, the country’s traditional sectors perform significantly worse in such comparisons. The Makov report recognized that a modern economy cannot depend on ICT alone and raised the need to reinvigorate Israel’s traditional sectors.

An additional socio-economic problem arises from this particular state of affairs. Since most medium-low and low industries reside in the periphery, the substantial gap between the sectors is also influencing the existing socio-economic disparities between Israel's core regions and the periphery. Therefore, according to the Makov report, strengthening traditional industry not only contribute to economic growth in these particular sectors, but can also lead to social and economic empowerment of the Israeli periphery.

In order to do so the Report focuses on the need for particularization of Israel’s traditional sectors and the establishment of specialized niches that will attract global markets. Building on Israel’s capabilities in ICT and other knowledge-based sectors, the traditional sectors are to tap into available knowledge and expertise and transform their businesses from the inside. This can be achieved by tailoring special policy support schemes that could deal with idiosyncratic barriers for innovation that exists in these areas.

In practice, a national programme to support innovation in the traditional industries was created under the CSO. The CSO investments in R&D are in principle neutral, meaning, the public funding is given horizontally to R&D projects that demonstrate high technological potential accompanied by commercialization prospect without prioritizing specific sectors. However, based on the Makov report, additional vertical or targeted support schemes were needed for stimulating innovation processes specifically in the traditional sectors. According to the programme, companies from the traditional industry will be provided with certain benefits while applying to the CSO's R&D fund. The condition is that the firm is classified as low or medium-tech and that its R&D investments are up to 7% from its turnover. The following table summarizes the programme's activities and outputs.

	2008	2009	2010	2011
Proposed budget (in million Shekels)	140	228	572	578
Approved budget	80	137	299	188
CSO's grant	45	80	170	107
No. of project proposals submitted	59	103	240	251
No. of project proposals accepted	51	93	199	156
No. of firms submitting a proposal	53	82	181	197
No. of firms receiving a grant	45	74	155	127

Funding and support to companies under the programme include the following mechanisms:

individual consultancy for firms that lack past experience in publicly funded R&D projects;
low and medium-low-tech projects proposals are discussed in the CSO committee separately from high-tech proposals;
a reimbursement of costs related to the submission procedure provided retroactively to the selected proposal;
firms are exempt from paying royalties in case the project results can be commercialised.

These different measures are directed at encouraging innovation in the traditional industry through unique support mechanisms in order to encourage less innovative firms within the traditional industry to carry out R&D projects with minimum risks and costs.