Innovative Switzerland explores the ‘startup nation’ Israel

It has become a cliché to say that Israel and Switzerland share a lot of common features; more or less the same size in terms of population, economic successes built on brain power rather than on natural resources, and two of the most innovative nations in the world. It is therefore no surprise that the scientific and trade relations between the ‘Startup nation’ and the ‘#1 innovative country’ are thriving. According to Israeli statistics, Switzerland would even be the second most important provider of goods and services to Israel after the USA, with a value of nearly 8 billion USD in 2018. Israeli exports to Switzerland are unfortunately much smaller (1.35 billion) and rather shrinking. Swiss official figures are much more modest (Swiss exports to Israel: 2 billion USD; Swiss imports from Israel: 739 million, including goods and services). What has been the most remarkable development in the last 7 years, however, is the exponential growth in the export of services from Israel into Switzerland, from a mere 50 million USD in 2012 to 459 million last year. A ten-fold increase matched by a more than doubling of Swiss exports in services during the same period (from 408 million USD to 937 million). These figures demonstrate that the potential of cooperation between these two hi-tech labs rely mostly on the digital economy.

Switzerland remains an industrial powerhouse with performant large companies in pharma, machine and metal industries, food, and, last but not least, watches, obviously. Like Israel, Switzerland invests a lot in R&D (3.2% of its GDP, or 14 billion USD against 4.2 % or 11 billion for Israel), and enjoys one of the highest productivity in the world. This is seen as the recipe for maintaining its competitive edge in the world markets. Furthermore, Switzerland has implemented a very liberal policy. It is fully integrated in the European market and enjoys free-trade agreements with a large number of countries, including Israel, but also China. The Alpine country has been the second European country after Iceland to sign such an agreement with Beijing, in 2013. Since then, there has been a steady growth in the trade with China, which has largely benefitted the Swiss export industry.

Three specific features explaining the success of the Swiss economic model over the long term need to be highlighted. Its legendary political stability is the first one. It is true that roughly the same coalition has ruled Switzerland since 1959. Second, its decentralised federal system allows for a healthy competition between the 26 cantons, as taxation, corporate and individual, is mostly a cantonal competence. For instance, corporate taxes amount to over 20% in Berne, but less than 15% in Zug or Nidwald. Finally, its unique education system, based on vocational training, provides companies with a high-skilled labor force tuned to the needs of the market. Almost two-thirds of young Swiss join a company when they are 16 years old instead of entering a purely academic path. The beauty of the model is that anyone can access university, even after having begun her/his professional career as an apprentice. A mason or a carpenter can end up as an architect if he/she has the skills and the will.

These particularities have attracted a large number of multinational corporations in Switzerland. The estimate is that over 25’000 multinational companies are active there, among which maybe the largest concentration of companies are ranked in the Fortune 500. Nestlé, which has a significant presence in Israel, remains the largest Swiss company by the staff it employs (over 320’000 worldwide), whereas Glencore comes first in terms of yearly turnover (more than 200 billion USD). ABB, Novartis or Roche are the most famous ones ranking in the top ten. They are all active in Israel.

We have realized two years ago that the startup scene in Israel is largely unaware of the potential offered by Switzerland. Why to exit in California when much closer Switzerland can open the doors of the world? We have started a dynamic program aimed at making the Swiss ecosystem better known to Israeli companies. In Mars 2020 we are launching the Israel-Swiss Lean Launchpad: we will invite Israeli and Swiss startups to work together in a common space, both in Switzerland and in Israel. We aim at a cross-fertilisation process that will, on the one hand, lead Israeli innovative companies to realise the interest for them to look at Switzerland as a perfect hub to reach out to the world. On the other hand, we wish to inject some of the Israeli culture into Swiss habits. Swiss are more risk-averse than risk-takers. In Switzerland, it is hard to bounce back after a bankruptcy, whereas Israeli VC are precisely looking for individuals who have learnt from their mistakes.

Venture Capital in particular needs to be boosted in Switzerland. With 1.24 billion USD invested in Swiss startups in 2018, the sector pales in comparison with Israel (over 6 billion). One may argue that innovation in Switzerland takes place within the hundreds of thousands of SMEs as much as in the large corporations. Furthermore, thanks to the Swiss cautious mindset, a far larger number of startups survive and become profitable. Maybe. But in a world where startups are like speedboats showing the way to the large carriers, we need to have many more speedboats than we have today. That we can learn from Israel.