Raphael Bar-El

Entrepreneurial High-tech Cluster Development: Israel's Experience with Venture Capital and Technological Incubators

ABSTRACT This study deals with policy instruments supporting high-tech start-up activity. It is based on the Israeli experience with two specific government programmes: Yozma, which triggered the emergence of the venture capital industry, and the technological incubators programme. These programmes had significant impact on the development of the high-tech cluster in Israel. While venture capital has positive impact on the growth and strength of high-tech clusters, it has also significant drawbacks, such as narrow geographical distribution of high-tech activities and narrow technological diversification. In this study we will analyse whether the interaction between Yozma programme and the technological incubators programme, reduced these drawbacks. We will examine whether the technological incubators in peripheral areas in Israel succeeded in attracting high-tech start-up activity as well as venture capital investments, and whether the incubators were supporting more diversified technological fields than the venture capital industry. In addition, we will try to determine whether cooperation between venture capitals and incubators led to more balanced investments patterns in terms of geographical distribution and technological diversification. Our empirical work is based on a population of 3747 Israeli high-tech firms, established between 1991 and 2004. In analysing this data we will attempt to determine whether venture capitals and incubators have dissimilar effectiveness in supporting start-ups and different technological and geographical preferences. The findings suggest that while venture capital-backed firms have higher success rates, their activities are more concentrated in central areas. In contrast, the technological incubators proved successful in attracting activity to peripheral areas and to less popular technologies, but their success rates are very low. Finally, the findings suggest that incubator graduates that received venture capital financing had significantly improved results.

Venture Investments in Israel—a Regional Perspective

Abstract This paper analyses the geographic distribution of venture investments in start-ups in Israel, using data for the period 1995–2004. The findings show that their location behaviour differs from that of high-tech activities: they show a pattern of “dispersed concentration” (as compared with a pattern of “concentrated concentration” of high-tech activity), with high levels of concentration in focal places, but at a commuting distance from the main metropolis. This is explained by the fact that venture investors also play the role of entrepreneurs and managers. The comparison between different types of venture investors shows that local venture capital funds lead to the heaviest concentration in the metropolis, in comparison with foreign venture investors. This heavy concentration of venture investments implies increasing regional gaps, with a minimal participation of peripheral regions, even those that enjoy some high-tech activity.

Measuring the technological intensity of the industrial sector: A methodological and empirical approach

Abstract This paper contends that most definitions of what comprises a “high technology” industry are based on only one defining characteristic. It is argued that an adequate definition needs to be based on a multi-dimensional view of technology and a methodological approach is suggested for classifying industrial sectors into “technological profiles” on the basis of the various aspects of technology that they embody. Based on this methodology, an empirical study based on sub-branches of Israeli industry (at the 3 digit SIC level) is presented. Using cluster analysis and analysis of variance it is shown that the technological profiles have similar industrial, and not just technological, characteristics. The policy implications of these findings point to the need for a definition of “high technology” that caters to the policy needs and objectives for which it is being defined.

Targeted Consultancy Services as an Instrument for the Development of Remote SMEs A Brazilian Case

This article claims that traditional supply of public support programmes for small and medium-sized enterprises (SMEs) in remote locations fails to achieve its objective: it is not met by ‘hidden’ demand. An experiment was conducted in SMEs that did not use available consultancy programmes in three remote regions in the state of Ceara in Brazil: a consultant was sent to each of them on a diagnosis mission. The results indicate that there is a ‘hidden demand’, in the sense that most of the enterprises need consultancy, but do not apply for the available services, and that they are generally incorrect in their assessments of the problems they face and how the issues identified should be prioritized. After benefiting from short-term diagnostic consultancy, they are better able to evaluate problems and, consequently, use available professional consultancy services more efficiently.

Technological Profile and Industrial Structure: Implications for the Development of Sophisticated Industry in Peripheral Areas

BAR-EL R. and FELSENSTEIN D. (1989) Technological profile and industrial structure: implications for the development of sophisticated industry in peripheral areas, Reg. Studies 23, 253–266. This paper outlines the prospects for the development of sophisticated industry in peripheral and semi-peripheral areas. The debate on this issue usually presents a rigid and bifurcated image of large capital-intensive plants in the periphery and the seemingly unyielding concentration of R&D in central locations. A major claim here is that this image can be softened-up if a more integrative definition of the term ‘technology’ is taken. A methodological approach for assessing the level of technology of the industrial branch is therefore introduced. A multi-dimensional approach is adopted that classifies industries into ‘technological profiles’ based on the different combinations of aspects of technology that they embody. This methodology is applied empirically to a data-set based on sub-branches of Israeli industry at t...

The Gap between Free Market and Social Optimum in the Location Decision of Economic Activity

This article presents a simplified model for comparison of the spatial distribution (core—periphery) of economic activity resulting from free market conditions, with the distribution that would lead to a social optimum. It further examines the public policy measures required to lead the economy towards the optimal distribution. Simulations are conducted to illustrate the mechanism of intervention of public policy and to test the feasibility of various measures. An important conclusion is that public investment in the creation of competitive ability in the periphery may provide the solution to market failure and therefore lead to the achievement of a social optimum greater than the free market optimum. Another preliminary conclusion is that public policy should consider a combination of measures (such as improving both regional infrastructure and the quality of the labour force), since focusing on a single measure may not be sufficient to achieve a social optimum.

Overreliance on the Core—Periphery Model? The Case of Israel

In the field of national and regional development planning considerable use has been made of the core–periphery model as a means of generalising the spatial structure of a national economy. The general argument of the paper is that under certain conditions such a model may represent an unsatisfactory characterization of actual conditions which, in turn, may cause decisionmakers to make an inaccurate diagnosis of a regional problem, leading to an inappropriate policy response. After considering the core–periphery model and its recent extensions, this general argument is examined with respect to the Southern region of Israel, a region customarily viewed as one of the nations peripheries. It is demonstrated that in several important respects the region does not conform to the usual stereotype of the periphery. The impact of public policy on the development of the region is also considered, and it is argued that the particular form of intervention has not always been in the best interests of the region. Two alternative policy emphases for the future development of the Southern region are outlined.

Entrepreneurship and rural industrialization: Comparing urban and rural patterns of locational choice in Israel

Abstract The role of the local entrepreneur in the development of rural industrialization is often overlooked. Based on an empirical survey of entrepreneurs in both urban and rural areas in Israel, this paper shows that the rural setting scores less favorably than the urban for nearly all those locational attributes that would attract industrial development. Consequently, the chances of attracting external initiatives to rural areas would seem slim. Instead, it is argued that a strategy for rural industrial development needs to be based on the mobilization of indigenous entrepreneurial potential for which the rural setting provides a subjective relative advantage.

A Joint Virtual Advanced Technology Incubator - A New Pattern of Israeli-Palestinian Economic Cooperation

This article proposes a new and unique framework for the promotion of cooperation between Israel and the Palestinian Authority in the fields of innovation and advanced technology development. The goal is to strengthen the Palestinian Authoritys economic basic structure, using the experience and know-how gained by Israel in these fields. We consider the development of a new project: a Palestine-Israel Virtual Incubator (PIVI). This project suggests a new Israeli-Palestinian cooperation pattern, in sectors and types of economic activity that are not based mostly on unskilled workers but are based instead on relatively advanced technology, including innovation, upgrading of old technologies, and high-tech activities, using the skilled workforce that already exists or is in the process of being formed in the Palestinian Authority. This project may provide a long-term catalyst for a new type of economic and scientific cooperation between Israel and Palestine, involving the US and other countries. The basic concept in our proposal is that the virtual incubator will allow high-tech and innovative firms to benefit from the expertise and professional networks of the different existing incubators, thus increasing the array of services available and exposing the companies to greater business opportunities.

Rural industrialization objectives: The income-employment conflict

Abstract This paper examines the existence of a trade-off between employment and income levels as objectives of rural industrialization. The theoretical approach suggested in order to explain conflicting views regarding the relations between these objectives treats separately static conditions, dynamic conditions and long-term projections. Some of these considerations are tested using empirical data relating to rural industrialization in Northeast Brazil. The conclusions reached refer to some indications of optimal industrialization policies for the achievement of alternative development objectives.