Multinational corporation Siemens, the second largest company in Germany, has been active in Israel’s market for many years but only via agents. Until recently, the company refrained from making any real investment in Israel. A year and a half ago, Siemens decided to change its strategy, entering negotiations to acquire Ornet, a purchase completed in 1995.
Israel, according to the new approach, is not only a market for Siemens wares. Israel’s technological, economic and scientific resources are very impressive, making it an important partner in exchanging know-how, and a goal for fruitful cooperation in research and development, according to says Klaus Y. Gothel, Siemens AG economist-director of operations in Africa, the Near and Middle East. Gothel met with Israeli journalists several weeks ago.
As proof of Siemens’ intentions, Gothel mentioned projects which the multinational has established in Israel over the past year and a half: a communications system chip designed in partnership with Israeli company Nisko and establishing the $20 million Star venture capital fund which invests in Israeli start-ups. A close scientific research partnership has sprung up with Israel’s universities and research institutes. And there is the aforementioned acquisition of Ornet, which deals in development of switching technology and communications products for local area networks.
The advancement of the peace process, and the expected lifting of regional barriers have given Siemens hope for positive conditions enabling industrial cooperation. The company also expects to increase investment in Israel’s infrastructure, such as electricity production, development of the electrical grid, development of transportation and mass transit systems as well as expanding the communications infrastructure in Siemens’ markets. Siemens is a global player in each of these areas with a strong presence in local projects around the world.
Present and future Siemens investment in Israel is directed at the high-tech field. "We want to utilize the Israeli mind to the benefit of Siemens," says Gothel, who notes that 60% of Siemens’ global sales are of systems and products on the market less than five years. Siemens, of course, will not ignore its ongoing attempt to increase its market share of Israel’s consumer market. Today, the company is one of most important suppliers to Israel’s electricity infrastructure and power plants.
Israel Electric Corporation is the country’s largest customer of Siemens equipment. Bezeq also uses Siemens products. As competition increases in the public and private switching sector, Siemens will be able to increase its sales volume for communications equipment as well. Siemens’ Israeli agent reported $200 million annual turnover for 1996.
Despite Gothel’s optimistic statements, Dr. Heinrich Von Pierer, President and Chief Executive Officer of Siemens AG said at the company’s annual news conference that "the company is following the events in the Middle East," but did not add anything to the fairly clear statement. He did emphasize the company’s interest in Palestinian Authority projects. One, in Ramallah, already has Siemens’ active participation.
Gothel who is in charge of the region, says that within a few weeks a decision will be handed down as to how the new company will operate within Israel. Apparently, Siemens will own 50% of the new company. Nisko, the company’s representative to Israel Electric Corporation, will own 20%, as will Y. Zigler agencies, which also acts as Siemens representative to Israel Electric Corporation. 10% will be transferred to the agency representing Siemens in either the medical equipment or the computer field.
The intention is to employ 250-300 persons in the new company, which today numbers only a few employees. Most of the staff will be Israeli, and if German employees come to work there, it will be for short periods of time in order to assist in regional market penetration. The general manager of the Israeli company will be responsible for activity in the Palestinian Authority, but for especially large projects Siemens will set up independent agencies in the PA. "My vision and dream," says Gothel, "is to have Siemens companies all over the Middle East, all working in close cooperation."
At the same time, Siemens has accelerated activity in the Arab world, in countries such as Syria. "Never has any political or economic entity in any Arab country ever told us they prefer we not be active in Israel," says Gothel. "We have even been encouraged by Syrians to continue doing business here. They know we view Israel as a very interesting partner in terms of high-tech."
Despite Siemens desire to penetrate the Israeli market more deeply, the bottom line of the company’s financial report has not yet justified the desire. According to a company spokesman, Siemens has to date lost DM 10-15 million on investments in Israel. "But we are not upset, as there are always losses on every new investment in a new country and you don’t see profits right away. The loss also includes activity in the Palestinian Authority. We will continue investment, regardless."
Siemens press pictures © Siemens AG