So Hewlett-Packard (NYSE:HPQ) is threatening to withdraw its investments in Israel and move its production and R&D facilities to more attractive locations, such as Singapore. They're threatening us? We'll show them! We Israelis have a natural tendency to ridicule external threats. United Nations-Shmunited Nations; that's nothin'.
It's convenient for us to depict ourselves as the pitiful victim, who gives heart and soul, and gets spat in the face in return. Didn’t we give Intel (Nasdaq:INTC) grants worth hundreds of millions of dollars? Didn’t we offer benefits beyond compare to foreign investors? And look at how they repay us. A minor amendment to a law, and they pack their bags. They're not ashamed to sit on their suitcases! Where's that trust, those past relationships, conventions and commitments?
Besides, we persist in telling ourselves, the Israeli engineer is of such super-high quality that the great high-tech companies simply can't survive without him. With all due respect to Ireland and Singapore, we are Israel, sire of Mirabilis and Check Point (Nasdaq:CHKP); the second Silicon Valley, and even that we say only out of modesty. We don’t want to create an unnecessary earthquake in greater San Francisco, do we?
But en route to this above-mentioned final insight, we've missed the main point: large companies don’t make threats for no reason. They are furious, and they will act accordingly.
Hewlett-Packard can now get zero companies tax and zero dividends tax for ten years in Singapore, without any geographical restrictions or investment thresholds. Absolutely fabulous. In contrast, Israel is offering Hewlett-Packard two alternative tracks, both combining carrots and sticks. The "Ireland track" offers a 10% companies tax for ten years and a dividend tax of up to 15%. The "Intel track" offers zero companies tax and zero dividends tax. But there's a catch: the investment must be at least NIS 1 billion, the company must have a turnover of at least NIS 25 billion, and the investment must be made north of Carmiel or south of Arad.
You don’t have to be Hewlett-Packard CEO Carly Fiorina to realize that with all the appreciation and esteem for Israeli high-tech engineers -- and it does exist -- a comparison of the terms simply allows no room for deliberation. Companies like Hewlett-Packard are answerable to their shareholders (and Hewlett-Packard's are already edgy over its ungainly and not particularly successful merger with Compaq), and they cannot justify keeping activities in a country that refuses to meet the competitive terms of others. If Singapore is offering better terms, they will go to Singapore.
Published by Globes [online] - www.globes.co.il - on August 19, 2004