"Globes" -
High-Tech Supplement, August 30, 2000
(Translation from Hebrew by courtesy of Ericsson Israel)
HIGH-TECH IN BLOND
High-Tech can also be found outside Silicon Valley and
Wadi Silicon. Sweden is slowly rising to the status of a power, while providing
an excellent example of building a lasting industry. Image of a technology
state
by Ella Jacoby-Bashan, Stockholm*
ellaj@globes.co.il
|
The Swedes also have a Mirabilis. It is called
SendIt. A story of a small startup that developed a not particularly complicated
wireless application for Microsoft, then sold it to the Redmond giant in
July 1999 for $110 million. This modest deal gave the Swedes a strong kick
in their soft socialist belly - and a strong push to a fresh and glittering
startup industry. Since then, many of the good blond children who were
raised on the laps of giant conglomerates with flat hierarchies and as
modest citizens of a welfare state, have dared to lift up their heads and
declare with some arrogance that they want to make money.
Capitalism, Heaven Forbid, has become in the past
year and a half the leading engine of the Swedish high-tech industry. And
not necessarily a Volvo engine. The new generation of the Swedish entrepreneurs
do not have the same stubborn patriotic sentiments held by the older generation
toward their good old industries, even though each Swede carries in his
life a warm spot for the Swedish brand of brands: "You may love Volvo or
hate Volvo, but as a Swede, you feel something for the brand," says Daniel
Svenson, an economic correspondent.
Like Chromatis
Up until a few years ago, the mood of the economy was
mainly socialist. The state wanted its citizens to work in large companies
that have large pension funds, that would serve as shock absorbers for
the pension payments from the thinning coffers of the state. The Swedish
stock exchange functioned very well, serving as the principal, or rather
the only, arena for exits. Actually, it is best not to mention the word
exit. Money in Sweden was made in automobiles, steel, energy, medical equipment
and telecommunications, with good and well-known institutions - with a
"strong hand and mighty arm". Not with "signs and numbers".
If SendIt turned things upside down, then Qeyton came and reshuffled
the cards. In May of this year, Cisco bought this startup in a stock swap
valued at $800 million. Qeyton made a product competing with Chromatis.
But what is more interesting is the entrepreneur of this company, Lars
Egnel. This man was one the great technological brains of Ericsson - and
before that of Telia, the very enlightened Swedish Bezeq - and he even
proposed that the company develop the product. "In a very typical fashion,
they did not adopt it. They are capable of adopting only one idea at any
given time," says Svenson.
Entrepreneurial Schizophrenia
"For the Swedish entrepreneurial culture this also served
as added recognition that Swedish high-tech is not only Ericsson and Telia,
and that it is possible to succeed in other areas as well," says Svenson.
The youngsters have already internalized this message. While only 5-6 years
ago everyone ran to work in Ericsson and Telia, today 70-80% of university
graduates already want to work in small organizations or to start businesses
of their own. "Once it was, 'What, you haven't found work?' Today it is
almost 'What, you're not an entrepereneur?'" says David Nordfors, partner
in Baz Associates, a company bridges between Israeli and Swedish companies
in the high-tech field.
Notwithstanding all that, the motto "to make money" sounds strange in
the Swedish jargon. "More and more young people are saying that they want
to make money, but here you must be careful where you say this," says Christer
Zetterberg, who was CEO of Volvo in 1990-92, and who is currently managing
the IVA venture capital fund. What to do, in Sweden - which still maintains
a monopoly in alcohol and in certain telecommunications areas - this reeks
of capitalism, and capitalism in Sweden still stinks somewhat. So while
the younger generation cheers the acquisition of the Swedish Mirabilis
and Qeyton, the older generation grumbles with dissatisfaction. "People
speak of entrepreneurship and how important it is. But they do not want
to see many rich people popping up in Sweden. It is a very schizophrenic
situation," says Zetterberg.
Giving Birth to a Revolution
Rolf Skoglund, formerly a senior executive at Ericsson
and currently the manager of an investment firm, disagrees: "Socialism
no longer has much influence. Many people here made a great deal of quick
money in the past year." But you be the judge if socialism has passed from
the land: "I believe that whoever succeeds must show that he contributes
to society," says Skoglund. You'll never hear this sentence from an Israeli
or an American.
Why did a competing high-tech power suddenly appear in the form of Sweden?
"I sit in my garden and ask myself more than once how could this high-tech
explosion be possible in Sweden," says Kay Hemrich, director of the government
agency for encouraging investment in Sweden, formerly a vice president
of Saab-Skania. "There are several explanations. Sweden was always very
free trade oriented. We have been preparing ourselves for globalizations
for 50 years. Immediately following World War II we went out into the world
market, because our market was too small. Besides, we always had a very
technological orientation and we stressed the utility of the technology.
We are also very good in integration. The traditional hierarchical structure
of our organizations permits low-ranking employees to take initiative."
Polish Swedes
So who are the Arik Vardis and the Sefi Vigisers of Sweden?
"The Swedes are entrepreneurs if other Swedes are entrepreneurs," says
Nordfors. In Swedish society people look over their shoulder a great deal.
They are very concerned about what people are saying about them, it is
important to them that neighbors shouldn't say that they are out of line."
Not everyone agrees that Swedish entrepreneurs are such goody goodies.
"In the old economy, if I may call it so, you were adaptable and polite,"
says Zetterberg, "the new entrepreneurs are neither polite nor adaptable."
Nonetheless, they differ totally from the Israeli entrepreneur, says Zetterberg,
who visited Israel in March with a delegation of the Engineering Sciences
Academy (see box). "We expected that with all the religious background
in your country there would be many obstacles for industry. But it was
the most capitalistic system I have ever seen, the most direct.
"The new generation in Sweden has very strong motivation in business,
but even if the entrepreneurs didn't work in the old industry, the parents
did work in it. They too drag very heavy baggage from the Social-Democratic
way of managing things in Sweden. The Israelis, compared with us, are much
more businesslike. We saw the countries across our Baltic Sea crumble because
of their socialism, but we are still holding on to the old principles."
The Great Casino is Open
Nordfors distinguishes between two types of Swedish entrepreneurs.
There is the traditional entrepreneur figure of yore, who is a technical
person, scientist, inventor, a madman who sits in a cellar and looks at
everything through a microscope. The new generation of entrepreneurs are
people with a good education, usually graduates in economics and business
administration, with good connections, who until five years ago would not
have thought of founding their own company, but would go to work for the
large consulting firms. Today most Swedish entrepreneurs are not technical
people. They know how to build an organization and will look for technical
people who would join them."
The disadvantage of this, says Sven Otto Littorin - a partner in Baz
and the Momento investment boutique (among whose investors are also Zetterberg
and the large SEB bank of the Wallenberg family) - is that since the entrepreneurs
lack technical background, most of the entrepreneurship is primarily not
technical. "But there is nothing wrong with it if you are creative in changing
the market," says Littorin.
The great Swedish high-tech boom is not only the province of a small
and restricted elite group, such as here. The people in Sweden also began
making good money from industry - on the stock market, even though recently
the value of the companies traded has been slashed by about a third. More
than a million Swedes have invested in Telia stock when it launched its
IPO half a year ago, which made the Swedes the most stock invested nation
in the world. "As you become richer, you begin to see the advantages of
capitalism," says Svenson.
And the Swedes are realistic people, particularly when their livelihood
hangs on the exit. Zetterberg: "We saw that large old companies such as
Volvo and Skania are being sold. Thus people today are more fatalist. They
understand that this is the world in which we live. Swedish companies also
built their business on acquiring foreign companies. But here we don't
have the same readiness to sell as in Israel, especially to Americans."
Working Phone
The usually very successful Swedish stock exchange has
some disadvantages as well. "The business plan of every Israeli startup
states "Wall Street" on its first page. Anyone who succeeds in Sweden,
issues in Sweden," says Nordfors. "This is good, but we are still lacking
the international focus."
So with all this socialist baggage and such a small market, how do they
succeed in Sweden in building giant companies? Nordfors: "Should you play
"broken telephone" in Sweden, the message will reach very far and in almost
accurate form. In Israel, there will be hardly any resemblance between
the original message and the final result. Because in Israel everyone wants
to add of himself and choose alone with whom to share the information as
it is. In Sweden, it is important for people to be on good terms with each
other, to be fair and to cooperate. A large company requires cooperation
between many people and it cannot succeed in an atmosphere of individualism."
Besides
this, the socialism also dictated a more democratic structure, with less
hierarchy, where the management's door is always open to the lower ranks.
Not only in Israel
In Sweden, it is hoped that a local entrepreneur, who
tends to be more considerate of the opinions of others, would receive a
transfusion of ambition from the stream of immigrants that has recently
been flooding the country. It is hoped that the Swedish entrepreneur will
become more similar to the Chinese and Indian immigrants in the U.S., and
lead the industry forward. In the meantime it is more common to hear complaints
about rapes of local women, murders in the communities, robbery of the
Swedish welfare coffers and awakening of Neo-Nazism among the Swedes.
Technological Nation
But the Swedes are not mere compulsive consumers, they
are early adopters, especially of American technology. "With us, computers
are not something for the learned elite, but for everyone," says the Swedish
Minister of Commerce, Leif Pagrotsky. "In Sweden there are many cellular
telephones, many Palm Pilots, many computers (a whole lot of Internet,
a lot of bank clients on the Internet - 1.5 million). This didn't begin
today. A 100 years ago Stockholm had more telephones, in absolute terms,
than Paris or New York."
But in Sweden they do not rely on the extensive consumerism of the Swedes.
The government of Sweden, hold on, encourages its citizens to use software
and obligates employers to subsidize personal computers for their employees.
Now a world war is being waged there on the fate of broadband. Everyone
wants to have a hand in the above-mentioned marvel, including the government.
This is expected to take place in the coming year, when Sweden will become
the pioneer in the field, which will further reinforce its standing in
the first penetration market. There is no need to expend words regarding
the extensive cellular consumerism of the Swedes, a surprising manifestation
by the way, considering the cost of airtime there - about one dollar per
minute in daytime.
Smart Consumer
So how does the government encourage its citizens to become passionate
consumers of technology? "Not fearing technology is the result of the Swedes'
education. Knowledge based industry cannot rely on just a few Nobel laureates.
I can't explain it, I am not an anthropologist. I look out of this window
and this is what I see. Even the Swedish labor unions have always supported
change. The head of the metalworkers union was asked at a time when a new
production line was inaugurated in his plant, whether he is not afraid
of this move. He replied, 'I am not afraid of new technology, I am afraid
of old technology.'"
The Swedes didn't rest there. In order to ensure the future of their
industry, they doubled the number of students and created some 100,000
new workplaces. The government builds new universities, raises salaries
of high school teachers and allocates large education budgets to local
authorities. All this in order to raise the status of the teachers, states
Pagrotsky, to encourage teachers of exact sciences to enter the educational
system, and to introduce more girls into exact sciences. This last is being
implemented by creating special classes for girls, following a survey that
has indicated that girls are uncomfortable learning these subjects together
with boys.
There is a Boss
What we don't have and the Swedes do, is a veteran and
experienced management old guard with a proven track record. Those who
know what is development, know how to establish a large and profitable
organization, know how to package a business concept and a product - and
know how to sell. The Swedes have accomplished this not only in the fields
of automobiles (Volvo, Saab), steel and energy, but also in pharmaceutics
(Astra, Pharmacia Upjohn), medical equipment and telecommunications. At
first, the veteran management generation resisted changing the old work
methods, Zetterberg admits. But ultimately they were persuaded.
Zetterberg, for example, is very hot goods in today's market in Sweden.
A man with the charisma of an entire country, who quickly understood, just
as did his colleagues, the veteran managers of industry, that the big bucks
are in the entrepreneurial market. "It is much more interesting and also
more rewarding. It is very interesting to work with young people. They
are full of enthusiasm, for them the world is wide open and they totally
believe in their business plan. On the other hand, they need us to hold
their hand."
The assistance by the old generation was institutionalized by the Swedes
in the Connect project, which links between ventures, primarily university
based, and the veteran industries and private companies, which contribute
their time and experience to the beginner entrepreneurs. The rest of the
Scandinavians saw that it was good, and now this organization has been
replicated in other countries.
Ericsson is apparently one of the symbols of the transition between
the veteran Swedish industry and the more modern high-tech industry. Ericsson,
for example, missed the world trend of swallowing up startup companies
instead of routine and tiring management of splendid R&D. Only now
are they awakening to this trend, which Cisco turned into an art. Instead
of investing through a venture capital arm and then plucking the fruit
when it ripens somewhat, Ericsson maintains an internal incubator, developed
in which are ideas that do not necessarily conform to the company's product
line. Their fate is decided afterwards - to a spin-off or integration in
the company. But Ericsson is also taking huge initial steps in the direction,
and its representative in Israel, Bo Andersson, is charged not only with
shrinking Nokia's market share - but also with tracking down new technologies.
It appears that Ericsson and Telia are speaking like politicians speak
of the need for cooperation, instead of aggressively seeking new technologies.
"True," says Svenson. "This is the traditional way of doing business. When
they see a new technology such as WAP, they say, 'Great, let's develop
this."
Notwithstanding its mistakes, Ericsson remains the flagship of the Swedish
high-tech industry. Everyone wants to be Ericsson when they grow up, and
almost everyone knows senior executives in Ericsson or former Ericsson
senior executives. And if they don't know anyone in Ericsson - they say
that they know senior managers in Ericsson, which helps them cut through
the venture capital forest.
Ericsson did another important thing for the Swedish high-tech industry:
differentiation. Now the entire world knows that if it is looking for something
in the cellular field, primarily in the cellular Internet field, the address
is Stockholm. More accurately, Kista - the science park near Stockholm,
which became a synonym for excellence and innovation in the wireless field.
Ericsson created here a strategic anchor (it is transferring here most
of its employees) and has attracted to the site Nokia (which is stealing
many of its employees), Intel, which opened here its wireless development
center, as well as Microsoft, which has a joint venture with Ericsson.
What began as an inexpensive real estate solution in the 1970s, became
in the past 9 years a particularly successful project of the large industrial
companies, the government and the Stockholm municipality. The idea was
to combine industry with research and education in order to create cross-fertilization.
Some 30 scientists have already transferred their research laboratories
to Kista; a computer sciences university is in the process of establishment;
commercial companies are partners in setting the curriculum; and it will
have student dormitories and an urban settlement for employees at the site,
some 28,000 at present.
The objective is to enhance the meeting points between industry and
research, and between industrialists and businessmen, thus encouraging
joint ventures, making it easier to recruit employees, to attract investors
to the area, to create incubators at the site and to increase the number
of ventures born in the park. Kista has been crowned by the Wired magazine
as the second high-tech power in the world, after Silicon Valley, and together
with Boston and Israel. Bertil Nyberg, who has taken charge of the park
project after 16 years at Ericsson, says that the Kista address has become
an asset for the companies located there. He, by the way, would very much
like to see Israeli companies represented there.
No Options in the Forest
But it is not only Stockholm that is reaping success in the high-tech
area. The Swedes, who almost swooned from pleasure at the sight of our
incubator program, have been wise enough to do something that we haven't
even dreamed of. While our high-tech map is shrinking into the central
area, the Swedes have decentralized their high-tech industry. "We have
high-tech centers in small villages that no one ever heard of," Pagrotsky
explains. "These are places that have no neighbors for a distance of 200
kilometers. They go hunting in the morning and fishing in the evening -
and in between they work. The costs there are low. In the middle of the
forest, the employees don't ask for options."
Why the cooperation between the universities and industry? One must
understand: the Swedes don't have an "8200" that produces shrink-wrapped
entrepreneurs straight from the military induction base. Its gray resources
come from the universities. Once the industry gloried in the few prestigious
universities in central cities. However, the Swedish government permitted
the establishment of additional universities in outlying regions, some
30 in number, and saw to it that their academic level does not fall below
that in other locations. Sweden has a tradition of cooperation between
industrial firms and academic institutions. Many companies, primarily pharmaceutical,
form close relations with the institutional laboratories - obtaining from
them ideas and granting them projects.
These friendly relations have received no small amount of criticism.
In a socialist country such cooperation can be perceived as tainting academic
purity with capitalistic putrid flesh. However, in the local tradition
of cooperation, these laboratories of the academic institutions produced
local entrepreneurs and ventures, and at present each such university town
has a complete science park, surrounded by an entire industry of service
providers.
Seeing Far
But even beautiful and clean Sweden isn't free of disputes. Each venture
arouses opposition, each government move or failure draws fire. There are
taxes, there is a tired heritage. But in Sweden the thinking is far ahead,
strategic, toward the horizon of the coming generations. The planning range
there does not end with the next no-confidence vote. This how to build
a wall. This is how to build Nokia and Ericsson, as we can only dream about.
(Box - page 6 of original)
IT COSTS THEM MORE
Swedish tax burden is a millstone around the neck of its
industry
The essence of the dispute between the business sector and the government
is what to do about taxes. Sweden is known for its heavy tax burden compared
with Europe. Not only is heavy income tax imposed on the employee, which
may seem somewhat funny to Israelis: a maximum 30%, but also the tax which
the employee is to pay for its employees: 35%. If such a burden is too
heavy to bear for any employer whatsoever, it is doubled and redoubled
for a startup that strikes out into the world with thin financing (sums
of capital raised in Sweden are much smaller than ours).
So what to do? Issue options. Options? The Swedish government says,
please. You want to tie the options to wages and thus ensure that your
employees remain in your company? Pay us taxes just like on ordinary wages
(even though the options haven't been exercised as yet), or it is possible,
alternatively, to grant the options in a manner unlinked to the wages,
thus saving taxation (taxes are paid upon exercise only), but then the
options will not serve as a restraint to tie the employee to the company.
Christer Zetterberg, the former CEO of Volvo who is currently managing
an investment firm: "We must change this. But the Social Democrats are
afraid. They don't understand that in contrary to what is happening in
veteran companies, it is much easier for the startup entrepreneur to take
his laptop and leave Sweden. And there are Swedes who leave for the U.S.
The problem is that there are no Americans who come to Sweden."
Sweden's Minister of Commerce, Leif Pagrotsky, is tired of listening
to complaints about the taxes. "The issue of taxation is totally exaggerated.
This is like a soap opera in Sweden. Sometimes they are right, and there
are problems. We are financing the tuition of students and this is good
for business, but the businessmen don't want to pay taxes. We made taxation
changes well before the Germans of Israelis, and more changes will have
to be made, but I am simply trying to place in proportion this knee-jerk
reflex of Swedish businessmen to complain about taxes. Here it is like
talking about the weather."
And what taxes are paid in Sweden? Here is the list:
Corporate tax: 28%
Employer tax: 33% of the employee's salary (for social security)
Dividends paid by subsidiaries (holdings of more than 25%) in Sweden
to the parent company: not taxable in Sweden
Dividends paid to foreign shareholders are taxable at the rate of 30%
(usually offset to 15% if there is a double taxation treaty with the other
state)
Personal income tax: 26%-30%
Tax on interest, dividends, capital gains, etc.: 30%
Personal capital exceeding $100,000: 1.5% (includes bank accounts,
shares, real estate, cars, boats, jewelry, etc.)
Real estate tax: 1.5%
VAT: 6% - 25% (mostly 25%).
(end of box - page 6) |
(box - page 7 of original)
A GOOD PLACE TO START FROM
It is worth trying to market in Sweden before the U.S. A Beta site of
nine million inhabitants can answer quite a few questions - and even produce
a nice cash flow
"Israel is not a market for us," the Swedes apologize politely. It makes
us laugh. We? Market? We have never presented ourselves as a market. We're
a technology power whose market is the whole wide world.
For the Swedes this is very strange. They, after all, are not much bigger
than we are. This Scandinavian commercial power totals nine million inhabitants.
True, the Swedes say, it is not a big market. But it is a good market,
in which it is very worthwhile to try out a product before pouring tons
of money on penetrating the U.S.
Why? "Swedish consumer mentality is very similar to the American," says
David Nordfors, partner in the Baz company that bridges between Israeli
and Swedish firms. "Many American companies test their products here before
launching them on the market. It is also easy to carry out market surveys
here. If you ask a question of a person in the street, he will usually
tell you the truth."
And in contrast, the Swedes speak marvelous English. By us, almost everyone
in the street knows a few words of English. But the Swedes can speak English
almost better than the Anglo-Saxons. They have an amazingly rich vocabulary
- usually decorated with a British accent. Here's the proof: the Swedes
are among the few nations of Europe that do not commit the sin of dubbing
films. And again - the government is involved in this as well.
Can you see Israelis recruiting management here instead of the U.S.?
Nordfors: The problem in connecting between Swedes and Israelis is the
mentality. The Israeli mentality is somewhat similar to the American. The
Israeli entrepreneur is very aggressive. You can recruit management here,
but you must understand that you won't be able to raise your voice to your
people, because at that moment they will all disappear."
A management style that is very different from the U.S., says Christer
Zetterberg, former CEO of Volvo and currently managing an investment fund.
"We look at a longer range. We are more democratic in our management. Swedish
management is not hierarchical. Of course you need to be a leader, and
even a more effective one in the new economy. We are also very informal.
I spent three years at Renault and it was another world."
And truly, the Swedes are the nicest people you will ever meet. They
are hearty and hospitable, and you will very quickly find yourself invited
to their homes (it is customary to take your shoes off at the entrance
and bring candy or flowers). "With the Germans to be polite is to be formal,"
says Nordfors. "With Swedes to be polite is to be pleasant."
Salaries in Sweden are lower than in the U.S. and in Israel. The average
salary for a beginning entrepreneur will amount to NIS 13-15,000 per month
before taxes. Wages may double after raising substantial capital. An average
salary for an engineer with experience - some NIS 20,000 per month.
"It is a direct flight of four hours and an hour's jet lag," says Nordfors.
But there is only one direct flight per week to Sweden, and the jet leg
is something else entirely: in the wonderful summer the sun doesn't really
go to sleep: a bright line decorates the sky throughout the night, and
it keeps some people from sleeping.
And in the winter, when the Baltic freezes to a depth of a meter, and
icebreakers replace buses for travelers from the archipelago that surrounds
Stockholm, the sun rises at nine-thirty in the morning, and takes its siesta
at two-thirty in the afternoon, not to rise again. If this depresses the
Swedes, it is reasonable to assume that our entrepreneurs will prefer to
stay with the air conditioners and complain about the heat. They can leave
their penetration into Europe in Swedish hands and set the meetings of
the board of directors in beautiful Stockholm when spring arrives.
(end of box - page 7) |
(box 1 - page 9 of the original)
ACTUALLY, WHAT IS THE DIFFERENCE?
In the financial press, there isn't much difference between Sweden and
Israel: the Internet changes everything
Life is good in the Swedish Globes, the Dagens Industri). The editorial
offices are located within a huge designed space, with a relaxation area
in the form of a coffee shop, juke box with Elvis and the best blues -
as well as a meeting room which is an exact replica of the Victory, Admiral
Nelson's flagship. What to do, the chief editor is a ship buff, while the
journalists hate this room, dark with small round portholes. In a country
where light is a precious commodity, they prefer to hold the editorial
board meetings on the closed in veranda.
The Dagens Industri, like Globes, started its great boom in the days
when the stock exchange flourished. But while our people began their love
affair with investing in securities in the Eighties, the Swedes began to
play the stock market only in the past two years. Today, more than half
of the Swedish population owns stock. When Telia, Sweden's Bezeq, launched
its IPO half a year ago, more than a million Swedes bought its shares.
The recent depreciation in the value of companies trading on the stock
exchange, by about a third, did not harm the paper's popularity. Just the
contrary. The new concept, that recently included a significant trend toward
private financial consumerism, caused readership to soar to 105,000 per
day (95% subscribers), making this economic newspaper the most profitable
paper in the country ($30 million in the past year).
The paper also began to broadcast a daily program on one of the TV stations.
Not that this is an indication of popularity. The Moseses of the Swedish
press, the Bonier family, who are also the owners of a large daily, are
the owners of both the Dagens Industri and shareholders in the TV station.
The principal concern of the print media has not skipped over the Dagens
Industri. To make an online version of the paper is necessary, how to make
big money from it is unclear, and how to be careful of cannibalization
of the printed version is even less clear. Like Ynet, this paper also has
chosen to establish a totally separate editorial board for the online version.
Here too, the Swedes are preparing for the coming appearance of a competing
economic site with only an Internet presence, composed of escapees from
the economic press. The principal weapon in the war: even stronger emphasis
on the private finance aspect, with wanted ads, book purchasing service,
etc. In the meantime, so they claim in the paper, they are profiting from
this activity. Cannibalization? "There was talk of it. The current approach
- let's do it well and continue to profit from it, not quite clear how,"
explains one of the journalists.
(end of box 1 - page 9)
|
(box 2 - page 9)
AND THEY EVEN WANT TO BE OUR FRIENDS
They, are actually the ones responsible for bringing the news of Israel
high-tech to Sweden. "We traveled through Silicon Valley in California,
and everywhere people spoke about Israel," relate David Nordfors and Sven
Otto Littorin. "It was quite irritating. We said to ourselves, let's do
what the Japanese did in the 1950s: take an Instamatic camera, a pad and
pencil, and see what they do in Israel."
The Swedes were surprised at what Israel has to offer, no less than
the Israelis were surprised at the recent references to Sweden as a high-tech
power. And here as well, the private sector led the encounter between the
two countries. Nordfors, Littorin and Robert Eriksson launched "Baz", a
company dedicated to bridging between the Swedish and Israeli high-tech
markets. Nordfors, married to an Israeli, spends half his time in the mild
winter of the Holy Land, and the other half in the temperate summer of
Sweden. He brought to Israel many of the best traditional industrialists
of Sweden, who are currently leading the high-tech industry. A delegation
that arrived in March 2000, was headed by Swedish engineering science academics,
who took off their jackets and went to meet the industry: funds, entrepreneurs
and the unavoidable bureaucrats. The Swedes marveled greatly, mostly at
the Israeli entrepreneurs.
When the snow melted, a reciprocal Israeli delegation went to Sweden,
headed by the then Minister of Commerce, Ran Cohen. It was mostly composed
of government officials and venture capital people. They visited Ericsson,
met with the heads of the Swedish government - and it was decided to draft
a Memorandum of Understanding. On what? "Since it hasn't been signed yet,
it is to soon to discuss it," says Camelia Melander, in charge of the Israeli
desk in the Foreign Ministry. "The idea is to promote joint research and
projects between the countries, primarily in the area of information technology."
An exciting traditional political draft.
And what can the two countries really do together? Sweden has pharmaceutical
companies (Astra and Pharmacia Upjohn) and medical equipment, that are
seeking new developments. Ericsson is seeking technologies in Israel; Sweden's
Bezeq, Telia, replies politely but doesn't really know as yet what Israel
has to offer. Altogether, the Swedes are not really focused regarding what
they can obtain from Israel. They would like to bring to them Israeli entrepreneurs
- to learn from them how it is done, to encourage them to open branches
in Sweden and to also carry out joint R&D projects, primarily in the
wireless field.
Besides that, they are interested in acquiring new technologies. They
will not do it quickly like the Americans, now will they pay like the Americans,
but it will happen. Primarily they are looking here for technologies in
the areas of wireless, telecommunications, fiber optics, security and biotechnology.
Rolf Skoglund, formerly a senior Ericsson and Microsoft executive and currently
a manager of an investment firm: "It is possible to create a joint brand
and joint marketing. Israel is strong in innovative technology and solutions,
while the Swedes know how to package business concepts. There could be
student exchanges, and Israel can teach us from the very deep knowledge
that it possesses."
(end box 2 - page 9)
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| (box - page 10)
BIG BROTHER
Ericsson, selling $200 million in Israel, is signaling that venture
capital investments in Israel are a reasonable possibility - and promises
to threaten Nokia's hegemony in Zion
Ericsson entered Israel some four years ago, upon hearing the bells
of deregulation. Today the team of Bo Andersson, president of Ericsson
Israel, is composed of some 200 employees from 12 countries. The company
has won fat contracts here, including the installation of the Orange infrastructure
in Israel - in the Gaza Strip and the West Bank. Company revenues in Israel,
says Andersson, have reached $200 million last year. "Israel is a very
good country for us," Anderson says. "We are working at the pinnacle of
technology, contributing to Israel and educating the Israelis. The problem
with Israeli companies such as Tadiran, which are used to working with
the military, is that they don't develop according to international standards."
Ericsson Israel doesn't merely sell equipment. They also examine cooperation
with Israeli companies. Andersson: "Israeli companies don't need money,
but rather someone to take their product and launch it in the world. They
aren't so good in marketing and distribution, while we have good distribution.
This is much more important than investing ten million dollars in a startup."
Nonetheless, Ericsson is about to establish an investment fund that will
make minority investments in Israel and Europe, alongside two funds that
are already investing in the U.S. and Asia, in collaboration with Merrill
Lynch. The scope of the fund that will invest here is unknown as yet.
Almost every day Ericsson Israel examines companies that are interested
in cooperation with the mother of wireless industry from Sweden. The company
opened here a laboratory for testing equipment in the cellular Internet
field. Companies pay for using the laboratory, which also acts as a filter
against various frivolous people and hackers.
Will you acquire Israeli companies?
Thorbjorn Nielsen, vice president for marketing and strategic business
planning at Ericsson, No. 2 in the company: "At the right price. Israeli
companies are very expensive. Besides, most of the acquisitions in these
areas are unsuccessful. There are problems of personnel and culture. It
is necessary to ensure that people don't leave for other companies. It
is possible to keep them for a year, usually not longer than that. We have
acquired a few small companies in the U.S. and other countries, and we
have guarded the people well, but we weren't very good in integration."
What would be a reasonable price for an Israeli company?
"Depends on the company. It differs. Last year it was
one price, and now it is ten times as much in very hot areas. When I began
working on acquisitions several years ago, the price for an engineer was
something like a million dollars. Today it is $20-30 million. I looked
at your company named ECI, which began to split itself for acquisition
purposes. As a rule, today acquisitions are more complicated. Once it was
a gentlemen's agreement. Today it is greed and speculation."
So what are you looking for?
"We are looking for companies that have products, so that
their engineers would not disappear in the event of purchase. Or joint
ventures. Altogether, we have a very difficult problem of people. Both
Nokia and Ericsson have very much outgrown their countries. So a great
deal of industry has grown up around these companies. Unfortunately, there
are very many startups that want to use our name. So they take people from
Ericsson and Nokia and say to other organizations that they have good connections
with us. This causes us many problems."
What else characterizes such a strong organization in a small country?
"25% of the industry depends on orders from Ericsson.
The same goes for Nokia. Our tradition is, that even if this means more
competition, we are in favor of open standards: Simbian, Bluetooth It is
good for companies that have a small domestic market."
Let's return to the acquisitions. It seems as if you are hiding something.
"We have no hidden agenda in acquisitions. 15% of our turnover goes
to R&D, and we complete this by strategic acquisitions. Besides that,
we are entering into strategic partnerships and joint ventures. In order
to complete the IP, for example, we had to make acquisitions in the past
two years: we bought Torrent, Talbit and ACC, and we made a minority investment
in Juniper, we bought Qualcom's infrastructure department, etc. In addition,
we are making minority investments in startup companies through the new
funds, taking an equity position of 20-40%."
Your motives for establishing the financial funds are strategic?
Purely financial, and also to find technologies before
they become too expensive."
Namely, to buy cheap.
"The declared aim of the funds is acquisition."
There are rumors that you are going to give up the cellular devices
operations, due to losses in the past year.
"We are not going to give up the devices. The fact that
it has not been so successful in the past half a year doesn't mean that
we are giving it up. Terminals (devices, A.I.B) are a very important part
of our infrastructure. People think that terminals have lives of their
own but this isn't so. No one makes terminals only."
One of the reasons, certainly, is the tremendous power of the devices
in driving the brand name?
"Undoubtedly."
You are waging a very hard war against Nokia in Israel.
"What is happening in Israel only reflects what is happening
throughout the world. They have without any doubt taken from us the leadership
in the world of terminals. Our problem with the terminals is that we did
not focus on colors and design. We focused more on the technology and less
on the consumer. We lost some market share, but the change is very small.
Most of the market share was taken from Motorola, which led the market
just a few years ago."
Andersson: "Nokia is a very good company with very good products. Last
year we were very good in sales in Israel, in the GSM infrastructure area.
It should be kept in mind that we are only 3.5 years in Israel. Just wait,
we are coming. I am inviting you to look at the results of the last quarter
of this year."
(end box - page 10) |
(box - page 14)
STARTUP
by Ella Jacoby-Bashan
VIRTUAL CELLULAR
Why should a cellular supplier bother with all this switching? Let him
sell airtime to a reseller - and lay back
Alongside quite a few technological ventures, it is possible to find
in Sweden ventures in the service area. Ebit is such an entrepreneurship,
and what a surprise, it plays in the cellular playground. This company
is what is called a "virtual cellular operator". What does this mean? The
company is a cellular operator who does not own infrastructure. It rents
the infrastructure from larger operators and sells cellular subscriptions
with special services intended for a defined target population. In the
case of Ebit - young people aged 17-32.
There is some technology in this venture, but it is not its essence.
"It is primarily a matter of wrapping," says Martin Svahn, a founder of
the company. The intention is to include services of introductions, acquisition
of products that speak to the target population, etc.
This doesn't require a tremendous investment in marketing?
"We are seeking other marketing channels. We market the service through
the Internet, through viral marketing, through NPOs, and shops visited
by our target population - such as record and sport stores. The existing
marketing methods of the cellular operators will not survive over time.
This is shown by surveys by consulting companies. The distributors do not
produce added value. As long as prices are dropping, the distributors are
facing mounting problems."
The company intends to create a uniform brand name for all of Europe.
"We cannot make a brand like Coca Cola. So we will make a cross brand.
If someone buys a Nike shirt, let's say, he'll get a subscription, something
like that."
Will you also place a brand on the cellphones?
Cellphones will be an object of little interest in just a few years.
This model will not hold up. The cellphones will be part of the deal."
The company is still awaiting a yet another deregulation in the area
of cellular services to make it possible to expand throughout Europe. Market
penetration is scheduled for the first half of the coming year, in Norway.
"This is a limited market from which we can learn without spending too
much money, and the deregulation there is more advanced."
Ebit is not the only company with such a business model. Another company,
named Sense, will also be a virtual cellular operator, but it will turn
to the home consumer market. Another company, Tele 1 Europe is focusing
on organizations. Besides these, the company's most substantial competitor
is in Britain, answering to the name of Virgin (yes, yes, it belongs to
Richard Branson).
Thus far the company obtained the initial round of investment, in the
range of three million dollars, from Carnegie Fonder, a Nordic investment
bank. The company is currently raising another ten million dollars.
(end box - page 14) |
(box - page 15)
VENTURE CAPITAL
by Ella Jacoby-Bashan
ellaj@globes.co.il
VALUATIONS FROM ANOTHER COUNTRY
The venture capital market is growing in Sweden
as well, but the value of the companies still touches ground from time
to time
Until three years ago, the playground of Swedish
venture capital was populated by a small number of players. The number
of members in the local venture capital association numbered 50. Today
it is 200. This is not the only change that passed over the market. In
1997 most funds concentrated on investments at a late stage. Most were
buyout funds, which didn't make deals of less than one billion Swedish
Kronor ($110 million today).
A year ago the market began to change: more money started flowing into
the early stages, and new players entered the picture: industrial firms
that launched venture capital arms; angels; new Swedish venture capital
funds in American style; venture capital bodies in the nature of incubators;
as well as foreign bodies that invest directly. It is estimated that less
than 30% of the money going around in Swedish industry is foreign money.
In contrast to what is happening here, the Swedish pension funds participate
in the festivities in a big way. They invest both in other venture capital
fund and also in startups, by means of special management companies. By
the way, the value of Swedish companies is much lower than here. They recall
the values of pre-Mirabilis days.
"I was very impressed by your venture capital funds. The people there
are smart and aggressive," says Kay Hemrich, director of the government
agency for encouraging investment in Sweden, formerly a vice president
of Saab-Skania. He, by the way, would very much like to see Israeli investment
in Sweden. David Nordfors, a partner in Baz, a company for bridging between
Israeli and Swedish companies, was less impressed: "With Israeli funds
you get the feeling that their motto is 'where is the party', namely, what
is happening now - let's go there."
Rolf Skoglund, formerly a senior vice president in Ericsson and a senior
executive in Microsoft Europe, is one of the most sought after industrialists
who decided to go into the private market. When his good friend, Sven Christer
Nielsen was fired from his position as CEO of Ericsson, he called him.
"I told him, 'come let's do something that's fun', Skoglund relates. He
also invited the founder of the legendary SendIt, Sweden's Mirabilis, Hjalmar
Windbladh.
Thus was founded the Startup Factory, an investment company for the
seed stage. The company raised some $60 million thus far from the Investor
Group, an investment company controlled by the Wallenberg family, from
the worldwide Softbank, as well as the private money of the entrepreneurs.
They conduct three to five interviews per day, and the average investment
in a company ranges between half a million and a million dollars.
They are primarily seeking service companies (mostly such that are based
on technologies of location, compression, text to speech and security.
The company is not focused on Sweden only, but rather on all the Nordic
countries, in the best Pan-Scandinavian tradition of the Swedes. Its headquarters
are in Holland (which is also considered to be a Nordic power), mostly
due to tax considerations.
Would you invest in an Israeli company?
"If we can provide it with added value. We have connections with Ericsson,
Nokia, operators throughout the world - including Asia, as well as several
consumer organizations, such as Procter and Gamble."
(end box - page 15) |
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