More Japanese companies are looking at the Israeli startup market in search of innovative technologies and investments to beef up their businesses, although they lag far behind the buyout sprees of global tech giants such as Google Inc. and Apple Inc.
Takeda Pharmaceutical Co. and Johnson & Johnson last August together teamed up with the Israeli government and OrbiMed Israel Partners to build FutuRx, a collectively owned biotech incubator.
Rakuten, the e-commerce giant, announced plans last month to buy call and messaging app provider Viber Media Inc., which is originally from Israel, for $900 million.
Large business organizations including the Japanese Chamber of Commerce and Industry and Keidanren have recently dispatched research tours to the country. On Tuesday, 11 Israel-based venture capital companies pitched their businesses at an investment seminar in Tokyo, drawing more than 200 participants.
“More Japanese companies are embracing the concept of open innovation,” said Ken Harada, senior commercial officer at the Israeli Embassy in Tokyo, referring to the concept that a company can create new value by harnessing the ideas and technologies of other firms.
The notion was coined by Henry Chesbrough, faculty director at the Garwood Center for Corporate Innovation at the University of California, Berkeley.
Harada said inquiries into Israeli companies have tripled in the last three years.
David Heller, a managing partner at Vertex Venture Capital in Israel who has been involved in Japan-Israel investments for 25 years, said there has been a rapid increase in Japanese investment in recent years, though the amount remains at just a fraction of the money supplied by U.S. firms.
“I expect more money coming from Japan as . . . Japanese companies come to understand Israel as a source of innovation,” said Heller.
Israel, often called the Silicon Valley of the Middle East, is a startup birthplace, spawning about 400 new businesses a year. The country, which has fought many wars since its founding in 1948, spends more money on R&D as a percentage of gross domestic product than any other nation among 39 countries surveyed between 2001 and 2009 by the Organization for Economic Development and Cooperation.
Experts say spinoff technologies from the Israeli military in particular have been fueling innovation.
Many entrepreneurs in the country are from Unit 8200 of the Israel Defense Forces. The unit manages army signals intelligence and analyzes vast amounts of electronic data, from wiretapped phone calls and emails to microwave and satellite broadcasts.
For example Check Point, an Israeli cybersecurity firm, has become a global giant through its firewall and VPN (virtual private network) products. It was created by former members of the unit and its products are based on technology originally developed by the unit.
Appreciative of the value of Israeli startups, American tech giants, including Facebook, Inc., and South Korean Electronics powerhouse Samsung Group have been on a shopping spree for Israeli technology companies.
But Japanese companies have been on the fence because of Israel’s geopolitical risks and relatively small market size, with its population of just 7.9 million.
The Japan External Trade Organization seeks to dispel such fears.
“Israelis worked without a problem even when missiles were launched against them,” said Hiroyuki Nara, who heads JETRO’s Israel office. “There are few risks in terms of doing business in Israel.”
In the latest example of a Japanese business going to Israel, Samurai Incubate Inc., one of the biggest business incubation hubs in Japan, announced Monday it will open an incubation center in Tel Aviv in May, aiming to expedite Japanese investment in Israel while seeking Israeli funds to invest in Japanese startups.
“I am worried that Japan is lagging behind the Americans and South Koreans in discovering up-and-coming technology in Israel,” said Kentaro Sakakibara, head of Tokyo-based Samurai Incubate.
Sakakibara, who plans to move to Tel Aviv, said Samurai aims to invest in 10 Israeli companies in the first year while setting up a new fund with local venture capitalists.