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Business

Germany Fails to Cash In Fully on Israeli Tech Boom

Germany is Israel's second most important trading partner. But both countries are struggling to change misperceptions and enhance business relations.

People hold Israeli and German flags

Their economies depend on each other

Michael Theis sat down with a group of several dozen German businessmen on Wednesday, May 7 to talk about a country they knew little about: Israel. Many medium-sized German business owners see Israel as a conflict zone. They know it's famous for growing oranges and that's where their knowledge ends, Theis said.

Yet Theis, a founder of the consulting company ISUCON Partners who became sold on Israel during his venture capital days, said the German businessmen at the recent meeting held in the eastern German city of Halle became very interested when he started explaining Israel's high tech prowess and demand for quality consumer goods.

"They were really excited and wanted to know how they can enter the market," Theis said. "I told them, if you have high-quality products, then you have a chance in Israel."

Israeli laboratory workers prepare stem cells

Israel has excelled in biotech

Misperceptions persist

Though the German media have pumped up coverage of Israel in conjunction with the country's 60th birthday on Thursday, May 8, there has been scant attention paid to economic issues.

Israelis accuse Germany of being willfully ignorant of the economic transformation which their country has undergone, often preferring to think of Israel as an agricultural backwater.

"Israel is a player in this global world," former Israeli ambassador to Germany Shimon Stein said. "We are not a country who is looking for charity or a kind of third world country that looks for development aid."

Tel Aviv skyline

Israel's technology sector is thriving

Nearly 75 percent of Israeli exports to Germany come in the form of high-tech goods, according to the German-Israeli Chamber of Commerce.

Yet not all of the blame for misperceptions lies with Germany. Israel needs to do a better job of showing that it can provide the quality and innovation that German companies demand, said Stein, who founded International Consulting after leaving the ambassador post in 2007.

"It is business. It is not emotions, it is not memories," Stein said. "What I have always been advocating is that business is a win-win situation. You come, explore. If you see that it's not good for you, go elsewhere."

Unequal trade continues

Israeli youth shouts as he dances during Independence Day festivities in Jerusalem

Israel's landscape has changed dramatically in the past 60 years

Germany-Israel economic relations started more than a decade before diplomatic relations were established in 1965 when Germany began providing reparations, mostly in the form of machinery.

Over the following decades, Germany's exports to Israel have remained fairly constant and include machinery, precision tools, chemical products and consumer goods.

The amount of trade between the two countries toped $5.4 billion (3.5 billion euros) in 2007 and has had an average yearly growth rate of 9 percent since 1960, according to the Chamber of Commerce.

While German corporate giants such as Siemens, Telekom, SAP and Volkwagen have been investing heavily in Israel for years, and in some cases decades, medium-sized German companies are less likely to have business relations with Israeli companies.

From the other direction, Israeli firms have long seen Germany as a key trade partner, and it remains second only to the United States. Israeli companies are investing billions in Germany's real estate market.

The trade inequality has also remained constant. Germany exports to Israel are twice what it imports. That generally holds true for all of Europe, said Grisha Alroi-Arloser, head of the German-Israeli Chamber (AHK Israel).

"Israel is buying in Europe and selling in the US," Alroi said.

Business not on political agenda

Solar cells

Israel is a leader in solar technology

Alroi would like to see Germany increase its direct investment to Israel and for Israeli products to have a stronger presence in the German market. Ideally, the trade amounts between the two countries would be more balanced, Alroi said.

However, Vardina Hilloo, a Dusseldorf-based business journalist who grew up in Israel, is somewhat more pessimistic about the desire from both sides to improve on the status quo. Hilloo started the online magazine Israfocus three years ago which aims to educate the German and European business community about Israeli business and economic topics.

From the German side, Hilloo sees not only a troubling level of ignorance among German businessmen but also a disinterest among German politicians.

She pointed to the premier of the German state of North Rhine-Westphalia, Juergen Ruettgers. The Christian Democrat plans to travel to the region for the fourth time on May 31. Yet Hilloo said she was discouraged to hear that the state leader does not have any major economic initiatives on his agenda.

"It's quite frustrating," Hilloo said.

Boycotts lose steam

Israeli soldier

Most German businessmen see Israel foremost as a conflict zone

In the decades after World War II boycotts against German products were common and there are still Israelis who would never buy a Volkswagen as the company is tied in some memories to Nazi atrocities against Jews.

For years, the Israeli government avoided the controversy by buying Volvos. Yet in 2007 the Israeli government raised eyebrows by announced it had awarded a government contract to Audi and Skoda, both owned by Volkswagen. The decision drew calls for a boycott from the religious party Shas.

"Private people are entitled to drive any car they choose to, but we [the government] should be careful about the message we give to the public," Shas minister Yitzhak Cohen said in a letter to Prime Minister Ehud Olmert.

Yet boycotts are the exception, not the rule, experts say. For the most part, German consumer goods enjoy the same reputation they do in most countries.

Most Israelis have no problem buying a German car or washing machine, if they can afford the high price tags, Alroi said, adding that many German products were available in Israeli stores.

Former Ambassador Stein agreed that boycotts are mainly a thing of the past.

"You will always find Israelis who will boycott German goods. But that is rather a negligible minority," Stein said.

Different ways of doing business

SAP buildings

Germany's SAP has bought Israeli startups

Theis, of ISUCON Partners, said in his seven years of doing business with Israeli companies, the Holocaust comes up as a topic, but he has never experienced bitterness or felt it was a barrier.

But plenty of cultural gaps exist, Theis added. ISUCON Partners mainly helping Israeli companies who want to open a subsidiary or are looking for partners in Europe, acting as a sort of matchmaker and cultural go-between.

Theis often finds himself coaching Israeli businessmen on the German style of business. Israelis will tend to call on Friday to try and set up a meeting for Monday, something which throws German partners who "are not that flexible," Theis said. German managers are also used to entering meetings with figures and presentations while Israelis tend to be more spontaneous.

"I have to tell my clients, 'please prepare a small 10-page presentation and bring products with you,'" Theis said.

Yet he sees a willingness from both sides to improve business relations. In 2007, Theis organized a delegation of 30 people from Leipzig to travel to Israel. It was a mix of politicians, businessmen and the odd filmmaker. The trip generated contacts and excitement and a follow-up trip is planned for October.

Theis said he is continuously surprised at how eager everyone he meets is to get down to business.

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