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Startups China Technology

Israel and China: The growing connection

By Hagai Tal, CEO

September 8, 2016 | 5 min read

Earlier this year, Israel and China announced bilateral free trade talks. While the two capitals are more than 7,000 kilometers apart, the economies of both nations are inextricably linked. In fact, there’s a growing economic connection between Israel and China—a connection that’s expected to increase by 50 percent this year. What’s driving the business exchange?

Taptica

Taptica CEO Hagai Tal discusses the growing link between China and Isreal

Like any good trade relationship, there are bilateral benefits. For Chinese firms, Israel is an important entrepreneurial and innovation hub that can be a model for China as it builds the engine that will power its economy for the 21st century, as well as a dynamic opportunity for investment. For Israeli firms, China represents an enormous market and an opportunity to scale the technology that has been incubated domestically.

Lessons the Chinese can take from a start-up nation

A few years ago, the authors of the book Startup Nation asked this question: How is it that Israel—a country of eight million people, only sixty years old, surrounded by enemies, in a constant state of war since its founding, with very few natural resources—produces more start-up companies than large, peaceful and stable nations like Japan, China, India, Korea, Canada and the United Kingdom?

While there are many reasons for Israel’s great start-up culture, one thing we hear time and again from Chinese visitors is that they admire our can-do spirit. In China, as one Israeli diplomat recently explained, Israel is synonymous with innovation and entrepreneurship. But while the world abounds with examples of entrepreneurship, Israel represents an especially useful model because there are important commonalities between our two nations that make unlocking and understanding the success of Israel’s entrepreneurial story particularly meaningful to China.

First, Israel and China share a developing nation mentality. Israel is a young country and even our newest entrepreneurs can recall the challenges of building infrastructure from scratch. Just as important, the Chinese government and its business community can draw meaningful lessons from the relationship between the public and private sector in Israel. Israel, after all, is a global technology leader, but unlike the U.S. or Europe, the foundation of that industry was built largely on government investment in domestic defense programs that continue to be the leading source for developing homegrown talent.

Israel’s example is especially on point, given the complex and evolving role of the Chinese state as that country continues to embrace a free market system. Finally, both Israel and China share a common understanding of the vital role technology plays in addressing critical challenges like food production. Here in Israel, the desert climate makes efficiency a necessity, but in China a highly efficient yield is essential for feeding a large population. Not surprisingly, Chinese investments in Israeli tech are rising, not just in the obvious areas like mobile and ad tech, but also in sectors like agriculture.

Chinese investors seek growth

There was a time when Chinese technology meant copying innovations from abroad. Those days are long gone. But after earning its reputation as a leading innovator, the Chinese technology industry now faces a challenge born from success—overvaluation. To continue growth, Chinese firms must look abroad. One reason we see so many Chinese investors coming to Israel is because we enjoy such a high percentage of technology unicorns. By investing liberally in “Silicon Wadi,” Chinese companies are able to tap into the world’s second largest start-up market (a good growth strategy) and access some of the interesting technologies that are byproducts of Israel’s defense industry. Just as important, the Chinese who come here tell us they see Israel as a bridge to other Western markets.

The opportunity in China is bigger than the Chinese market

Traditionally, the Israeli tech industry has focused on building start-ups that were sold to larger multinational firms. But today the Israeli technology industry is maturing to the point where the focus is shifting toward building our own multinational corporations headquartered in Israel. To carry out that transition, Israel needs a partner like China for two key reasons.

First, China represents a large and growing consumer market that is important to Israeli technology firms that must grow revenues beyond what is possible in a relatively small nation.

Second, but equally important, China offers unprecedented access to scale. The lifeblood of any technology business, especially those in the mobile and ad tech spaces, is the ability to scale because user data is the primary driver of innovation. What is especially exciting for Israeli firms about working with Chinese partners is the ability to test and refine products and solutions on a global scale.

Recently, Prime Minister Binyamin Netanyahu observed that cooperation between Israel and China can yield “enormous results” in “every field of human endeavor.” China and Israel have emerged as leaders of a global technology revolution. The question that comes next isn’t what our respective business communities can build together, but rather, how will those joint ventures change the world?

Hagai Tal is CEO of mobile ad tech business Taptica.

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