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               Securities and Exchange Board of India

developed at the Institute led to two very successful integrated chip firms. United Microland Corporation (UMC) and Taiwan Semiconductor Manufacturing Corporation (TSMC), which were initially promoted by the government and ultimately privatized.

2.10.Taiwan has benefited from close ties with Silicon Valley.  A transnational community of Taiwanese venture capitalists has fostered a two-way flow of capital, skills and information between Silicon Valley and Taiwan. There is also an emerging trend of grouping of Taiwanese and Indian high technology talents in Silicon Valley.  India can learn important lessons from the Taiwanese government’s focus on education and encouragement of small enterprises, via facilities such as Hsinchu Park, as well as a U.S. – style legal, regulatory, tax, and institutional environment.

2.11Similarly the  venture capital industry in Israel has grown from one firm with a corpus of $30 million in 1991, to eighty firms with a corpus of $3 billion  by 1998.  Further, Israel’s IT speciality is developing technology  rather than software or products.  This focus has meant that new Israeli ventures are most typically acquired by larger technology firms, and  IPO route in the U.S. markets has also been succeesful.  In fact, Israeli companies are the second largest group of companies listed on the Nasdaq markets after American companies, a remarkable achievement for a country of 6 million persons.

2.12Like Taiwan, Israel is another country in which government policy fostered a successful, highly diversified, self-reliant industry.  In the early 1990s, Israel restructured its legal, accounting and regulatory framework to mimic that of the United States.  The new Israeli framework guarantees U.S. investors parity with U.S. tax rates. In 1984, the Israeli government passed a law to encourage industrial research and development (R&D) and created the Office of the Chief Scientist to implement government policy related to this area.  The law’s strategy is to encourage private companies to invest in R&D projects with the government sharing the business risk.  Under the law, a Research Committee appointed by the Chief Scientist approves proposals for anywhere from 30 to 66 percent of given projects’ funding (up to $250,000).  These proposals, when funded, also receive tax exemptions for up to ten years. As an additional incentive to entrepreneurship, the Israeli government has created twenty six technology incubators designed to allow start-ups to convert their ideas into commercially viable products.

2.13Israel’s government participates in international cooperation, seeking to match the nation’s technical skills with global markets, and to share start-up risks up front with later-stage activities such a marketing.  The most successful of these ventures has been the Bilateral Industrial Research and Development Foundation (BIRD), a joint venture with the U.S. government.  The Israeli high technology

Report of K B Chandrasekhar Committee on Venture Capital13

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