Japanese firms, on the hunt for new technologies that will give their products a smart edge in a digitalized world, are increasingly looking to Israel, said Yoav Ramot, the head of a firm that helps match startups with Japanese companies.
Japan is the third-largest economy in the world and is home to some of the largest manufacturing and automotive companies. As the world moves toward digitalization and software, however, these firms are now scouting for technologies overseas for solutions that will enable them to maintain their edge over global competitors.
This presents an opportunity for Israeli startups, said Ramot, who has set up Million Steps, a firm with bilingual teams in Israel and Japan to offer Japanese firms a “fast track to Israeli innovation.”
Tech giants like Apple Inc., General Motors, Google and Facebook all have R&D centers in Israel; the number of such centers is close to 400, according to data provided by the Israel Innovation Authority. Today there are about 70 Japanese companies active in Israel and exploring the local tech market, through local representatives, offices or R&D centers, according to the data.
However, the number of Japanese R&D centers that are actually active in Israel is “very small, almost nonexistent,” Ramot said in a phone interview from Tokyo, Japan, where he has been living for the past three years. “We are going to see a lot more of those. Based on the demand that we are seeing and based on the projects that we are doing, I can say that there are already a few companies that are going in that direction and I think we are going to see tens of Japanese companies involved heavily in R&D in Israel in the coming years. And we want to lead that effort.”
Israel can bring its software prowess to the table, matching it with Japan’s strong manufacturing and hardware capacity, said David Litoff, the chief operating officer of Million Steps, Israel. Israeli firms often look to the US and Europe as their natural markets, Litoff said, but they have a growing interest in Japan.
The Japanese are very good in manufacturing but for cultural reasons tend to lag behind on innovation, and that is what the nation is seeking outside its borders, said Avi Luvton, senior director Asia Pacific Operations at the Israel Innovation Authority, in an interview.
We are seeing something that is “beyond an awakening,” Luvton said, regarding the relationship between Israeli and Japanese firms. The “Japanese are very curious and the match with Israel can be really wonderful, it can be a perfect fit.”
For many years Japan avoided doing business with Israel out of Arab boycott concerns, but the relations have warmed since 2014, and the prime ministers of both countries have visited each other.
Exports of Israeli products to Japan jumped 46 percent to $870 million in the first three quarters of 2018, compared to the previous year, while in the same time period Israel’s imports from Japan rose 7% to $1.51 billion, according to data provided by the Israeli Economy Ministry.
The number of Japanese companies investing and operating in Israel has increased in recent years, with Japanese investments totaling $3.5 billion over the past five years, according to ministry data.
In July 2017, Mitsubishi Tanabe Pharma said it acquired Israeli pharmaceutical firm Neuroderm for $1.17 billion. In 2016, Sony bought Altair, a maker of chips, for more than $200 million, while Japan’s Softbank has made investments of some $200 million in Israeli companies.
Israel and Japan said in January they will cooperate in developing digital health technologies and will promote partnerships in the automotive and cybersecurity fields. The two nations signed a total of six agreements, including a memorandum of understanding on cooperation in digital health.
The accords were signed during the visit in Israel of what has been called “the largest and most senior ever” Japanese delegation to Israel, led by Japanese Minister of Economy, Trade and Industry Hiroshige Seko, and including 150 representatives of some 90 companies, including giant corporations Honda, Mitsubishi, Hitachi and Toshiba.
“Japan is probably the least risky country in the world in terms of IP protection,” said Million Steps’ Ramot, who grew up in Japan with Israeli parents, came back to Israel for his army service in the elite intelligence 8200 unit, and returned to Japan to set up the firm. “Japan is a longstanding developed country, they have a robust legal regime,” and protection of IP “is very fundamental” for the business culture.
Recent trade tensions between China and the US may make it more difficult for Israeli firms to do business with China, he noted. “That doesn’t exist with Japan. Japan is not as large as China; the risk is much lower and long term it is in line with the geopolitical interest of the US and much easier for Israel to do business with Japan.”
The US is in the process of negotiating a trade deal with China, and the world’s two largest economies have been locked in a trade struggle since they both imposed tariffs on respectively imported goods. This struggle is raising concerns that the US will not look favorably on a tightening of trade and business relations between Israel, a long-time US ally, and China.
Million Steps holds a yearly event called the Japan Israel Innovation Summit that brings representatives of Israeli tech firms to Japan as well as hundreds of Japanese firms. “We get both sides to know about each other, and start creating connections,” Ramot said.
The firm has a number of Israeli companies working with it already, such as ridesharing company Via, which last year teamed up with Japan’s Mori Building Company, a Tokyo-based real estate developer, to provide it with an on-demand transit service in the city. Via’s co-founder and CEO, Daniel Ramot, is the brother of Yoav.
While vetting Israeli firms, Ramot said, Million Steps looks for a number of factors: the firms need to have a “breakthrough technology” that is a good fit for the Japanese needs.
It needs to have “something that solves a problem that the Japanese see as a big issue, for example, an aging population,” Ramot said.
Japan has one of the oldest populations in the world and its life expectancy is one of the highest, so any solution that deals with how to enhance the welfare of that population is “really interesting for the Japanese market,” he said.
Another pressing issue is mobility and the automotive industry, Ramot added.
Chemistry between the people is also a huge consideration, Ramot said, “Getting into Japan is very different from going into any other country in the world.”
Israeli entrepreneurs and firms need to be flexible and adapt their strategy to the local Japanese market. “We want people who are open” and who don’t necessarily want to copy-paste the same theme, or strategy that they had in another region to Japan.