Why Not Europe?

It seems Israel can only gain from the high-tech tug-of-war between Europe and the US. While the EU woos Israeli companies with its Fifth Framework R&D Program, NASDAQ's Marcus Wohlrab warns that, when it comes to finance, Europe is a dead-end street.

Cheery, pink-faced Briton David Talbot, a senior European Commission official smiles ironically at the suggestion that Europe is competing with the US through its R&D budgets.

"When we consider financing high tech research programs, I can't say the example of GSM is not what we have in mind," says Talbot. GSM cellular technology, on which Partner's network is based, is regarded as one of the European Union's greatest achievements. For political reasons, the standard began to be defined more than twenty years ago, and today it is the cellular world's dominant technology. Giant European companies, such as Ericsson and Nokia, owe a great deal of their success to Europe's leading position, initiated by politicians.

Last week, Talbot spent many hours meeting Israeli companies with the aim of convincing them it would be worthwhile joining the European research program. He came equipped with data regarding Israeli companies' most recent successes. The projects winning European financing under the IST (Information Society Technology) program, in the EU Fifth Framework Program for R&D, were recently chosen. The Israeli companies did quite nicely: 32 research proposals were accepted, and they will receive a total of euro 17 million. Among the winners are conglomorates like Israel Aircraft Industries, ECI Telecom, and Optibase, which has won European financing for the development of new technologies for the second time.

In between, Talbot is seeking local technologies that can be integrated into the specific area for which he is responsible - e-commerce. "We are now looking for technologies supporting the creation of digital trust, aimed at expanding the use of e-commerce," he says, explaining his personal interest in the Israeli industry.

Altogether, this year, Israeli proposals will receive funding equal to the total Israeli companies received from Europe in the past three years. The open competition between Europe and the US plays no small part. A short while ago, European officials complained that the Israelis were selling all their technologies to the Americans. "That's because they buy them," was the response from Israel, "You can buy Israeli technology too."

The competition is sometimes totally uncompromising. For example, there is no other explanation for Europe's decision to set up a GPS satellite network, even though the US system provides free services to the entire world. The European Commission initiated the project less than six months ago, under the name of "Galileo", and it is willing to invest $2.4-3.2 billion in it. The service is meant to start in 2005 or 2007, and will be provided through 26-36 satellites. The system will be developed with the aid of additional partners.

"This is an excellent opportunity for Israel to enter the European space program," says Marcel Shaton, General Manager of ISERD, the Israeli governmental organization that represents the European Fifth Framework Program. "The Galileo program receives part of its financing from the Fifth Framework Program and part from the European Space Agency. This is where we enter the picture. A month ago, we organized meetings with thirty Israeli bodies connected with the space industry, such as IAI, the Israel Space Agency, Tadiran, Telematics and others. There was enormous interest."

If Israel skillfully exploits the window of opportunity accorded by the EU Fifth Framework Program, it will be able to strengthen its closest export market. Against the backdrop of European stock exchanges competing with the US stock exchanges, the continent's financial market is starting to open up to foreign technological initiatives, including those of Israel, which bring their reputation with them from the US.

In terms of financing conditions alone, the Europeans hold out some interesting promises. For example, a commercial company receiving an R&D budget must add another 50% from its own resources. In fact, this works out much less, as the EU budget includes full overhead expenses, or 80% coverage of overhead expenses. If overheads are less than 80%, this means an almost clear profit to the company. The sweetest cherry is that it is a grant, not a loan, accorded to develop technologies, not products - and there is thus no need to pay royalties.

Some companies in Israel are already examining how they get the best of both worlds: EU budgets and Chief Scientist budgets. The idea is simple - the EU budget is given for the development of technologies within two years. The Chief Scientist budget is given for the development of specific products. There is no conflict, and the two budgets can finance two separate stages of the same process. ISERD is aware of this possibility, and not by chance. Chief Scientist Dr. Orna Berry is chairman of ISERD, which is most interested in full cooperation, in order to utilize the potential in every ounce of gold coming the way of the Israeli industry.

Despite the fact that the financing reaching Israel can be regarded as crumbs in relation to the overall EU Fifth Framework Program (the high tech component amounts to euro 3.6 billion, to be distributed in 1999-2002), ISERD is conducting an aggressive marketing campaign to convince the industry of the other advantages in cooperating with Europe.

Shaton says, "Companies are getting organized into consortia. A reasonable consortium consists of three companies and two universities. As the community is interested in commercial applications, the companies usually look for the end user of their products, or for a large customer, and form a consortium together. For example, in Italy, I found a certain company had done research into the automatic process of sorting mail, together with five European postal services companies, that consequently became its largest customers."

Published by Israel's Business Arena on September 14, 1999

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018