New Israel-Japan agreement follows in wake of Sony deal

When a huge company like Sony buys an Israeli start-up for a rumored $220 million, the Israeli and Japanese governments — even if they had been reluctant in the past to do so — can no longer keep trade between the two countries a secret.

Unable to beat ’em, then, the two governments are joining in the new trading relationship. And this week, officials from the Kansai region of Japan signed a memorandum of understanding on increasing trade and economic ties.

The signing was part of the agenda of a delegation of 30 top Japanese government and business officials who visited Israel this week, which included the Kansai officials — among them representatives from principal Japanese cities like Osaka, Kobe, and Kyoto — as well as executives from electronics firms Panasonic and Hitachi, and representatives of Japan’s National Export Agency.

As a result of recent activity, Japan has become an important trade partner for Israel, according to the Foreign Trade Administration. In 2015, Israeli exports to the island country reached some $770 million. Imports to Israel reached $1.3 billion. The main export sectors are optics and lab equipment, electric and mechanical machines, and medical and pharmaceutical supplies.

For years, Israel-Japan trade was a well-kept secret, with the very conservative Japanese reluctant to embrace Israel because of traditional fears of upsetting its Arab oil suppliers, or because of cultural differences. But several years ago, things changed, as Japan woke up to the fact that Israel had become a center of advanced technology — the kind of tech needed by Japan to snap its moribund economy out of the doldrums and compete effectively with its new Asian competition, especially from China.

“The Japanese finally realized there is a Silicon Wadi in the Middle East that rivals California’s Silicon Valley, and they don’t want to get left behind,” said Vered Farber, director of The Asian Institute, an Israeli organization that has long been seeking to convince both Japanese and Israeli companies that there was much to be gained from working together. “It took them a while to realize it, but they have finally begun to understand that Israel may have what it takes to keep their economy dynamic and growing.”

The sea change came in May 2014, when Prime Minister Benjamin Netanyahu visited Japan. And the relationship solidified after Japanese leader Shinzo Abe came to Israel in January 2015. Since then, the governments have signed numerous agreements — last October, for example, Israel set up a trade office in Osaka to promote its automotive technology among Japanese car makers — and Japanese companies like Toyota have organized tech events, hackathons, and other projects in Israel, as they seek out start-up talent.

But once a company like Sony gets involved in deals with Israel, there’s no point in keeping things on the QT anymore. In January, it was reported (and confirmed by Sony in March) that the Japanese electronics giant was buying Hod Hasharon-based Altair Semiconductor, a developer of 4G (LTE) chips for devices. Symbolic of exactly what Japan is looking for in Israel, the deal, according to Shlomo Gradman, chairman of the Israeli High Tech CEO Forum, is most likely focused on Sony’s attempts to compete in the rapidly growing Internet of Things (IOT) market.

“It’s a win-win, said Gradman. “Sony gets entrée into new markets, like the Internet of Things, that it did not have access to before, while Israel gets the presence of a true multinational — one of the few from Japan, setting a precedent for others from that country.”

According to the FTA at the Israeli Ministry of Economy and Industry, such deals are likely to increase — perhaps even dramatically, as Japan seeks to tap into Israel’s tech expertise to jump-start its economy and corporate culture, which has been “fading” in recent years: In 2010, China overtook Japan as the world’s second-largest economy (it’s now the third, as China itself in 2014 overtook the US).

And to prevent even more losses, explained Farber, the Japanese are turning to Israeli innovation. With Tokyo set to host the 2020 Olympics, said the FTA, Japan will be taking an even greater interest in Israeli tech, as it seeks advanced solutions for cyber-security, big data, medical tech, and more.

“The Japanese economy and society have been undergoing a unique process of change and openness, which presents a golden opportunity for Israel,” said FTA head Ohad Cohen. “The dialogue between our countries will continue, and it will strengthen economic cooperation between Israel and Japan in the future.”