Market-Targeting Initiative: Israel’s Smart Money Program

With the objective of learning from the rich experiences and lessons that other countries have gained from small- and medium-sized enterprise (SME) export assistance programs, the Asia Pacific Foundation of Canada presents a new research report series, “Going Global.” To read the entire report, please jump to the blue download tab at the end of this piece.

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Until early 2015, two-thirds of Israeli exports were carried out by some 70 Israeli companies, raising concerns that the Israeli export industry was overly centralized. SMEs interested in exporting faced many challenges and found it difficult to allocate the needed resources. Thus, the Ministry of Economy launched the Smart Money program in September 2014 to develop marketing capabilities in one or two predefined target markets. With total funding of some C$17M, it offers financial assistance of up to C$170,000 as well as professional guidance, including mentoring from professionals in the Ministry of Economy and external consultants. This program aims to increase the share of SMEs’ exports and reduce centralization in Israel’s export industry.

During its first stage, which ended in early 2015, the program received 79 applications from 57 companies, of which 39 applications were approved for 31 companies, with total funding of some C$3.83M (an average of C$98,000 per application). The second stage, currently underway, includes a special round for the Arab sector; to be eligible, more than 50% of the shareholding of the company must be from the Arab sector.

OBJECTIVES OF THE PROGRAM

In February 2014, Finance Minister Yair Lapid and Economy Minister Naftali Bennett announced steps to help Israeli exporters, who were facing difficulties competing in foreign markets due to the strengthening value of the shekel. In order to balance the risk of currency exchange rates, the government committed C$17M to fund the new Smart Money program. The program was intended to help 100 exporters sell their products in targeted markets.

The program seeks to:

Remove barriers in order to strengthen exporters;
Increase Israeli exports;
Extend the exporters into new markets;
Reduce the risk exporters assume when they engage in business overseas; and
Increase the share of SMEs’ exports and reduce centralization in Israel’s export industry.

The program helps participating companies achieve significant growth in the scope of sales in international markets, while focusing on developing marketing capabilities in one or two predefined target markets. This program also follows the successful 200x2 Fund that Israel ran between 2009 and 2013.

SPECIFIC INTERVENTIONS

The government decided to offer financial assistance as well as professional guidance, including mentoring from professionals in the Ministry of Economy as well as external consultants.

The companies that are accepted to the program receive ongoing marketing assistance from Israel’s trade attachés stationed in the target countries and from experts appointed by the Smart Money program.

As part of the program, the Foreign Trade Administration (FTA) at the Israeli Ministry of Economy grants partial funding for expenses related to marketing products abroad or purchasing services to advance marketing efforts in target markets. This includes:

Data aggregation;
Insurance;
Training for export activity;
Presenting products or services, including the establishment of commercial presentation facilities;
Establishing a marketing and distribution infrastructure;
Participation in expos and conferences;
Scouting for marketing consultants with knowledge of the target markets; and
Use of web-based marketing and sales tools, advertising, and standardization.

The Smart Money program is designed for SMEs from various industries (including professional services, software, and industrial subcontractors). Participants must export more than C$325,000 per year and be interested in increasing their total exports. SMEs in their early stages of exporting to foreign markets can also benefit from the program by investing in marketing in target markets. The grant rate is 50% of approved expenses (including data collection, advertising, conventions and exhibits, business travel, regulation, and insurance) up to C$170,000, but not more than the total linked amount of the grant received.

A company’s marketing plan can be up to C$330,000, of which the FTA can subsidize up to 50%. Companies that receive financial assistance in this program pay royalties of 3% of their sales growth in the chosen target market, over a period of five years, up to the sum of the grant.

An aid request is submitted online by the company to apply for the “Smart Money Plan.” The following documents are included in the application:

Action plan;
Budget request;
Certificate of incorporation;
Resumés of the company’s management team; and
The company’s financial reports for the last two years, certified by a Certified Public Accountant (CPA).

The action plan must be a detailed strategic action plan that includes clear objectives, defining customers, method of operation, modes of operation, and details of milestones to be achieved and their required implementation date. The selection committee acknowledges receipt within five working days of receiving a complete application. The committee evaluates the application and, if it returns a positive decision, a contact is sent to the company within 30 working days to sign the protocol.

The second stage of the program includes a special round for the Arab sector, in co-operation with the Authority for the Economic Development of the Arab, Druze and Circassian Sectors at the Prime Minister’s Office. This unique round allows companies to receive increased funding with less stringent application criteria. To be eligible, more than 50% of the shares of the company must be held by investors from the Arab sector.

OUTCOMES ATTRIBUTABLE TO THE PROGRAM

The impact criteria of this program are to increase the exports from all Israeli SMEs. Ohad Cohen, Deputy Director of the Ministry of Economy and Director-General at the FTA, said: “We have witnessed high demand for various export targets. There is no doubt that this plan will help Israeli companies fulfil their vision of developing in international markets.”

The FTA approved some C$3.8M for the first stage of the Smart Money program. In this stage, which ended in early 2015, 57 companies submitted 79 requests, of which 39 requests were approved for 31 companies. These companies were offered financial assistance of up to C$170,000 as well as professional guidance and mentoring.

According to the companies that took part in the program, the main area of improvement came as a result of the professional guidance offered by marketing mavens and the assistance that helped companies stick to the goals defined at the beginning of the program.

An example of a company that benefited from the Smart Money program is Pluristem Therapeutics Inc. The leading developer of placenta-based cell therapy products was able to develop its international markets using the funding and services offered by Smart Money. Specifically, Pluristem was successful in developing its business in Japan in 2015. [1]

Israeli companies participating in the Smart Money program can also benefit from the Israel Export and International Cooperation Institute, a non-profit organization operated by the government and the private sector, promoting the export of Israeli goods and services, trade relations, and co-operation and strategic alliances with overseas companies.

APPLICATION TO CANADA

Canada has a wide range of resources, including Export Development Canada, Innovation, Science and Economic Development Canada, and the Business Development Bank of Canada, to assist all Canadian exporters. These include bonding solutions, early deal financing, and working capital support. There are also programs that help SMEs obtain financing from traditional financial institutions.

In contrast, Smart Money is a focused program that provides direct funding support (50:50 matching) and some professional guidance in developing marketing initiatives in specific target markets for individual companies. Successful recipients repay their grants in the form of sales royalties. The program could be quite easily replicated in Canada, perhaps supported by Export Development Canada and local consul generals.

ENDNOTES

[1] Pluristem Therapeutics Inc. 2015. Pluristem Awarded Grant from Israel’s Ministry of Economy for Marketing its PLX Cell Therapy in Japan. http://www.pluristem.com/wp-content/uploads/2016/05/SmartMoneyGrant_final_isa.pdf