Dr. Felix Zandman, chairman and CEO of Vishay Intertechnology, decided to resolve the matter in his own way. He heard that Vishay-Israel’s activities were being termed impudent and scandalous, and that demands were being made that it return the grants received from the Investment Center at the Ministry of Industry and Trade. He saw the results of the examination conducted by Shmuel Mordechai, Investment Center at the Ministry of Industry and Trade director-general, claiming that Vishay had dismissed 1,650 workers, and Zandman chose to respond with numbers. Or, to put it more precisely, with an arithmetical argument that yields a completely different number (see below).
The dismissals are indeed dismissals, according to Zandman, but when the “employment mean” is examined, a much lower reduction in the overall number of workers is obtained – the plant has hired only 561 workers less than planned, according to this calculation. Meanwhile, it seems that his reasoning is working, as the appeased Investment Center director-general, Shmuel Mordechai, has already recommended to his minister, Dalia Itzik, to put calculations aside for now, at least until the furor of the world crisis passes.
But the real test will take place next week, when Vishay’s request for a 30% subsidy for an $80 million investment in Beer Sheva, which the prime minister has already approved, will be discussed.
”Globes:” Didn’t the public onslaught deter you from asking for further support?
“From asking? I didn’t ask for anything. I want to make it clear, I didn’t ask the government for anything. They asked me. In fact, they begged me. Due to the slowdown in business, we’ve frozen all our investments, not only here, but worldwide, until the recession is over. When demand increases again, we’ll resume (implementing) our plans. Beer Sheva deputy mayor Rubik Danilovitch told me that the amendment to the Law for the Encouragement of Capital Investment relating to the Negev passed recently, and that there were new advantages to establishing factories in the Negev, such as 30% grants. He asked us to reconsider, saying that despite them (the difficulties) we’d be able to build something there. I told him I’d consider it. Afterwards, he took me to the prime minister and to Minister of Finance (Silvan) Shalom, and they told me it would be good for the country if I opened a factory.”
“I agreed, and then I went to the Ministry of Industry and Trade, and they didn’t approve it. I said, 'no is no.' But, that wasn’t the end of the matter, unfortunately. I had another conversation with (Prime Minister) Arik Sharon about all kinds of things, and he inquired about the new factory. I told him that I couldn’t go ahead with it because the Ministry of Industry and Trade wouldn’t agree to the 30% grant, and that was ok with me. Sharon said that it wasn’t ok, and that he would see to it that it was carried out. So I didn’t ask for anything. He asked me. And if the government decides not to go ahead with it, I also accept that.”
“It’s not the first time. Several years ago, when Natan Sharansky was Minister of Industry and Trade, he wanted me to establish a factory in Ofakim. Shimon Peres also asked me to. But the Ministry of Industry and Trade stalled, so we canceled the project and opened a factory in Czechoslovakia. I don’t know what will take place now between the Ministry of Industry and Trade and Sharon, but we’ll continue operating in Israel in any case.”
"Globes:" Criticism of the Ministry of Industry and Trade can be inferred from that.
“It’s not criticism. If the Ministry of Industry and Trade decides that it’s not worthwhile to do it, I’ll accept it. I, as an outsider, or even as an Israeli citizen, who am I to say it’s not fair? It depends on the government, it doesn’t depend on me. If the Ministry of Industry and Trade has problems with Sharon, they should work things out.”
A basic instinct
The story of Felix Zandman is, in more than one sense, a story of survival. First of all, it is hard to find too many examples of start-up companies that have managed to survive nearly 40 years and, moreover, to become leading companies in their field. It’s especially difficult to do so in light of the high frequency of technological innovations, which bring in their wake constant changes in the preferences and needs of the market. Whoever adapts, survives. But only a few people manage to adapt and to adjust to a new reality time and time again. Those who do so are the great survivors of the hi-tech world.
But the story of Zandman’s endurance powers, which has culminated in his control of an empire of dozens of factories in 14 countries, four of which are in Israel, employing some 5,000 workers – is not only a story of the survival of a business.
On May 8th this year, the 74-year-old Zandman completed a cycle. At a special ceremony in which the president of the United States, George W. Bush, participated, the American Association of Electronic Industries awarded him a Medal of Honor for “his outstanding contribution” to the promotion of these industries. In his acceptance speech, Zandman noted the special significance of this date for him: May 8th is also the date when Nazi Germany announced its surrender to the Allies. On that date, Zandman said, he regained his freedom.
On the same occasion, Zandman gave Bush a copy of his autobiography, “Never the Last Journey.” The book relates his personal story, starting with his rescue by a Polish family, after nearly his entire family was sent to Auschwitz, through the founding of Vishay and the special connection it formed with Israel, and its establishment as one of the leading companies in its field in the world.
Zandman arrived in Israel this week to lecture at a convention organized by the Entrepreneurship Forum of MIT, in cooperation with Tel Aviv University's Recanati Graduate School of Business Administration. In an interview that he gave, he explained that his special background has influenced the way he chose to manage his business. “My drive comes from the Holocaust. The fact that I’m a Jewish Holocaust survivor makes me want to do things all the time, as best as I can and in spite of the difficulties, for my people. I have had this feeling since 1943, when, by all accounts, I should have been dead. That always pushed me ahead.”
Does your background influence the way you do business, too?
“The will to survive does. I feel the instinct. Even before people start becoming panicky about something, I already know it’s there. The instinct is relevant to business, and to life, and I presume that I acquired it during the war.”
The beginning
In 1943, Zandman’s family, who lived in the city of Grodno in Poland, was sent to the Auschwitz extermination camp. He himself was saved thanks to the fact that he had left their hiding place to find out what had happened to other family members, and didn’t manage to get back. Zandman decided to try to find shelter in the family’s summer house in the Polish town of Vishay, where his grandmother was born. At the time, a Polish woman was living there whom Zandman’s grandmother had taken in after the woman's husband had left her while she was pregnant. In spite of the danger to her and her children’s lives, the Polish woman decided to hide Zandman together with his uncle, who had arrived there before him, as well as two additional Polish Jews.
Because the Nazis conducted daily searches for Jews in the houses in the town, the four had to hide in a pit in the floor of the basement. In the dark, in that pit whose dimensions were one and a half meters long, one and a half meters wide, and one meter high, Zandman’s uncle began teaching him mathematics and physics. That was how Zandman’s love for the exact sciences began. He relates that since then, “I dreamed of becoming an engineer and a scientist, and that’s something I’m proud I’ve succeeded in realizing.”
After Zandman lived for one and a half years in subhuman conditions, the Russian army freed the area of Grodno, and the four came out of hiding. Towards the end of the war, when he was 17, Zandman learned that, except for himself and his uncle, his whole family had been exterminated. Even though he had wanted to immigrate to Israel, his uncle decided to go to France. They resided in Nancy, and Zandman began studying physics and mechanical engineering. Later on, he acquired a doctorate in physics at the Sorbonne.
Zandman made the first breakthrough in his career in France, when he developed a new technology enabling the properties of materials to be optically characterized. The new invention aroused a lot of interest in the industry, and various applications of it started to be developed throughout the world. Zandman himself moved to the United States in 1956 after being offered a job by Bosch, which wanted to use the invention to develop products for the American army.
“America was an enormous discovery for me,” says Zandman. “There, in fact, I learned how to do business. In the beginning, I thought you had to be very witty, to meet people all the time and to do all kinds of things. But I learned that people are very direct in America. If you have something and you present it in the right way – it works. All kinds of witty tactics simply don’t work.”
Zandman’s entrepreneurship career started, in fact, with a kind of disappointment that he suffered as a result of using this direct approach. After working for several years for Bosch, he succeeded in developing an electric resistor capable of withstanding changes in temperature. According to him, he saw this as a breakthrough, as such a resistor could enable electronic equipment exposed to high temperatures, such as the electrical equipment installed in airplanes and satellites, to operate with an unprecedented level of precision.
“I was already the company’s research manager then,” he relates. “I showed the idea to the manager of the company, and he said to me, ‘Felix, I know you and you’re a good technical person, but I have to check the market.’ So, he sent people to conduct surveys, and after several months they reached the conclusion that there was no market for it. So, I left the company and started my own business. That took some audacity. I left a very prestigious position and a senior post in an American company, where I also earned a high salary, and I said that if they didn’t know what to do with it, I would do it alone.”
The great breakthrough
Thus, in 1962, Zandman founded Vishay, which was named after that Polish town where his life was saved. And like every entrepreneur – then and now – he had to find an investor.
“It was a start-up that raised $200,000 at a valuation of $400,000,” says Zandman, who also infers from that a recommendation that is relevant to today’s start-ups. “It’s better to forego equity and to receive something, than to die without anything. When I decided to exchange 50% of the business for a loan, people told me I was crazy giving away half of the business for nothing. But it wasn’t for nothing. I needed the money then. In fact, I wanted to exchange even more shares, because I had no alternative. So the only recommendation that I can give young people, who are so in love with their inventions and with their companies, is that it isn’t worthwhile to commit suicide over 50% of the equity. Get the money and survive. It’s better to hold on to 10% of something that works than to hold on to 90% of something that doesn’t work.”
A lot of entrepreneurs start out like you, with a technological vision, but afterwards they start experiencing problems connected with the management of the business vis-a-vis clients, competitors, and the other factors in the market. Did you think of these things in advance?
“The only thing I thought about in the beginning was that I had invented a useful product, a new transistor technology that was very important because of its precision, and I wanted it to be useful for industry. It bothered me that the manager of the company had said that he didn’t want to develop and sell the product, but I did it anyway because the thought inspired me. I didn’t think of the stock market and of profits. In the first business plan that I gave my investor, I promised that we’d reach sales of $2 million. Today our sales are $2 billion.”
The product’s first clients were the American army and NASA. Commercial success soon followed, and Vishay’s sales turnover in the mid-1960s already stood at $50 million. Zandman says, incidentally, that the same product is still being developed today, with 90% being produced at a factory in Holon.
In the following years, Vishay continued to preserve a similar level of sales turnovers. Actually, its great breakthrough only came in the mid-1990s. After a $59 million sales turnover in 1985, the company started growing, culminating in a sales record of $2.5 billion in 2000, and a net profit of over $150 million. Zandman claims that the key to the company’s success is its ability to look ahead – to new markets and fields.
“We started by manufacturing transistors, and afterwards we moved on to producing capacitors, conductors, and passive components. Later on, we decided to enter the field of semiconductors, the main idea being to become the biggest supplier of discreet components, as we indeed are today. I, indeed, am not certain, but apparently the next stage will be to enter the field of combined circuits. It will be conducted in a very modest manner, and not in areas where we won’t be able to develop exclusivity.”
These processes were accompanied by a strategy of purchasing companies. Vishay is continuing to purchase companies nowadays, too, taking advantage of the low market prices, in light of the crisis in the world high-tech industry. The company recently acquired one of its competitors in the field of discreet components, the American General Semiconductor company, in a shares deal in the range of some $770 million. Prior to that, Vishay had purchased Infineon's infrared component department for some $120 million.
“Acquisitions are an important medium,” Zandman says. “I can’t develop everything, because I don’t have enough time. So, you can copy from someone and afterwards fight with him all your life. But, why copy when you can buy, thus creating a new opportunity, and afterwards research it further. That way, you are, in fact, spending your money on things you’ve bought. The company’s strategy is threefold: penetrating the market and competition, R&D and new products, and purchases – which can be a strong force that motivates the company. This strategy sprang us forwards to where we currently are.”
A strategy of mergers and purchases can sometimes also work in the opposite direction. How can you be sure that the company will continue to lead the market over time?
“You need (one of) several things in order to become a leader in the market. If you’re among the first three in sales in your market, then it’s clear that you’re leading. You can reach this position even if you’re smaller, but you have the best technology. The third thing is to be a leader in the field of services. If you have a commercial product and everyone has the same product, your way to be better is to supply the best service. We try to do each of these things, according to the situation in the various market sectors.”
The Israeli romance
Zandman started Vishay’s Israeli romance in 1969, with the founding of Vishay-Israel, which his son, Marc, today heads. Zandman, who frequently spends time in Israel and also holds an Israeli passport, won, in 1998, the Jubilee Award, conferred on behalf of the government to people “who put their trust in the growing Israeli economy, and who contributed to the economy of the country and to the welfare of its residents.”
Vishay-Israel’s activity continued to enjoy accelerated growth in the subsequent years. Last year, the exports of the company’s four factories – in Dimona, Migdal Haemek, Beer Sheva and Holon – totaled some $700 million. However, in spite of this extensive activity, over the years the media reported on several disputes between Zandman and the heads of the Ministries of Industry and Trade and Finance.
In 1997, for example, Vishay proposed a deal to the government, whereby it would establish a factory with an investment of $50 million. Following the prolonged discussions on the matter, due, among other things, to the lack of funds within the framework of the Law for Encouraging Capital Investment, the company decided to establish the factory in Czechoslovakia. Three years later, it was reported that Zandman had, apparently, warned the members of Knesset that the decision to raise the minimum wage to $1,000 (which meant a marked increase in production costs) would be liable to lead to the transfer of Vishay’s factories from Israel and to put a halt to the plans regarding the establishment of additional factories.
There have been ups and downs in your relationship with the government over the years.
“There were never downs. I love the Israeli government.”
Do you think that the government is giving enough support to the hi-tech industry?
“I don’t know what to say to you. I know that the government in Israel is very interested in there being a high-tech industry here. But, I’m in a strange position to answer such a question, because I’m an interested party, and if I say that the government should give grants, you can say that I want more money. So, what can I say now? It’s a competitive world, and the government has to decide what it wants and to formulate its strategy. I’ll accept its decisions, and we’ll have to analyze and reach decisions accordingly. We’ve made heavy investments here, we’ve brought factories and people here. But, the government must decide if that’s what it wants. I won’t respond.”
What about your declarations in the past, such as the one that the raising of the minimum wage would force you to transfer factories abroad?
“I never said that. Perhaps someone asked me what would happen if the minimum wage rose to a similar level as the minimum wage in America or something like that, and I said that it was very nice but it would become non-competitive in certain areas.”
You had ideas for enterprises in Israel – for example, a fund for the encouragement of technological entrepreneurship for immigrants from the CIS. Where does this currently stand?
“Nothing came of it. The people involved didn’t manage to find investors, and the business fell through, unfortunately.”
You also had a plan to establish a factory in Jordan.
“We started working on it because we understood that as time goes by and the wages in Israel rise, there’ll be products which can’t be manufactured here. It happened in the past, too, when we took one product out of the country and replaced it with another, newer, product instead. But, why take a product that can’t be produced here and transfer it to Czechoslovakia, for example, when it can be transferred to Jordan, which is right next to us, and it will also help relationships between the two countries? That was the idea. We started discussing it. We had no definite plan, but we knew that when the time came we would have to take products out of Israel, and Jordan was an option. Now it’s no longer one. Arafat made sure that it wouldn’t happen. That deal is dead.”
So, how many workers were really dismissed?
Reports recently appeared in the press about an apparent deviation on Vishay-Israel’s part from the employment goals to which it had committed itself in its business plans, as part of the conditions for receiving the grant to establish the factories in Beer Sheva and Dimona. It emerges from an examination conducted by Mordechai that Vishay today employs 1,654 workers in its factories in the south, compared with its commitment to employ 3,200 workers. The results of the examination were conveyed to Minister of Industry and Trade Dalia Itzik
The publication of the survey aroused the anger of the Histadrut, in light of the negotiations that Vishay is conducting to receive an enlarged grant of 30% to establish the new factory in Beer Sheva. Negev Histadrut chairman Meir Bibayoff recently claimed that Vishay’s management forbids its workers to set up committees and to be in contact with the Histadrut, and employs workers at minimum wage without social benefits. “Bearing this in mind, and in view of the extensive dismissals, Bibayoff said, “I don’t understand how Vishay has the audacity to demand grants from the country.”
Zandman, it turns out, is especially sensitive to such arguments. According to him, the data published regarding the extent of the dismissals in the Vishay factories are untrue. As proof, he pulls out a document prepared by Vishay-Israel management for the Ministry of Industry and Trade, according to which the number of workers dismissed in the Vishay factories in the south is much lower than the amount estimated by the ministry.
Vishay claims in the document that the company committed to employing 2,767 workers in the plan submitted to the Ministry of Industry and Trade. On the other hand, the weighted average number of employees in 2000 and in the first nine months of 2001 was 2,697. So, the document claims, “in spite of the world crisis in the electronics sector, Vishay has 76 workers less than planned for the combined years 2000 and 2001 (a 3% drop).”
Zandman admits that, due to the crisis, Vishay was forced to dismiss workers in its factories in Israel. However, even when the dismissals are compared with the plans for 2001, it is still a question of 561 workers less than planned (20%), and is not similar to the figures that have been made public. In 2000, he adds, the percentage of factory employees who worked in the south was 9% higher than planned. Moreover, the document that Vishay submitted to the Ministry of Industry and Trade concluded with the statement, “Once the world electronics industry starts to recover, we’ll employ more workers than planned.”
I don’t invest in start-ups
“It’s only a matter of life cycles,” Zandman says in reference to the prolonged recession in the hi-tech world. According to him, even though the current crisis is graver than past crises, it’s a natural situation. “Last year, the market reached a much higher level than expected, and so the current rectification is necessary. There’s a limit to the quantities of equipment that manufacturers can buy and to the amount of inventory (that can be accumulated). It was out of proportion, and now inventories are being adjusted, but demand will return again.”
As someone who experienced first-hand the difficulties involved in setting up a start-up company, Zandman understands the start-up companies’ present distress, and also has a specific criticism of the investors. “The strong will survive and the weak will die, but that’s how it is in a capitalist society. Many start-ups are, in fact, babies who don’t have enough money because investors don’t want to invest in them. That’s a pity, because the investors should understand that it’s a matter of a cycle, and that if a company is in a situation where it’s a year away from completing a product, they can give it money now, receive more equity, and not let it die. But, the strong will survive, in the end.”
Do you invest in start-up companies?
“That’s not how I work. I’m not a speculator, and I’m not involved in the speculations of the stock market. I invest only on one condition– if a company has a product that’s appropriate for us and we need it. In such a situation, we can buy the company, ask it to supply the product to us, or invest in it. But if it’s not connected to Vishay, I’ve no interest in it.”
A lot of large hi-tech corporations have, all the same, set up venture capital funds in recent years.
“Not us. We invest everything within the company and we don’t distribute dividends either. We have a one-track mind.”
Published by Israel's Business Arena on October 30, 2001