SIGNAL Note 33

An Interview with Dorian Barak, CEO of Indigo-Kuangchi

Israel supports the long-term vision and ambitious policies of the Belt & Road Initiative (BRI) in a variety of ways. A key avenue of engagement with China and the BRI is with leaders from Israel’s banking and private investment sectors. They bring their vast domestic and global experience to the China-Israel relationship and strengthen China’s tech foundations through identifying and facilitating Israeli technology acquisitions. One of these leaders is Dorian Barak, CEO of Indigo- Kuangchi and a member of SIGNAL’s Board of Academic and Expert Advisors. SIGNAL was pleased to interview Barak for the SIGNAL Note series. In it he shares his insights from years of business experience in the field.

SIGNAL: Please tell me a bit about your academic and professional background.

DORIAN BARAK: I’m a lawyer, and a business person by training. I was educated at Oxford, Yale and UCLA, and my focus was basically History, IR and Economics.

SIGNAL: How did you become the only one doing international M&A in the banking industry? You were at Hapoalim.

DORIAN BARAK: I moved to Israel, decided to work there after working on Wall Street for years, and decided to make my life here. I mean, Israel is a pretty exciting place. It’s at the intersection of three continents, and you have incredible human capital here, including a lot of people whose origins are in other places. So Israel’s become a business hub and a service provider to many different countries around it. And that’s even setting aside Israel as a technology hub in its own right!

Every Sunday night, if you go to Ben Gurion airport, you’ll see dozens of Israelis—hundreds of them—traveling to Africa, traveling to Europe, traveling to Asia for the week, back here for the weekend and then off again on Sunday. This is pretty remarkable, because if you want to get something done in Africa, or Moldova, or Burma—if you ask around, there’s somebody here in Israel who has done it. Israel is a geographically tiny place, Israelis are open, and the population is pretty small, so it’s very easy to get to anybody.

SIGNAL: It must be a wonderful network, then!

DORIAN BARAK: Oh, everybody here has a wonderful network, and that’s pretty remarkable. I decided to focus my business in these past few years, on the burgeoning Israel-China trade phenomenon. I say phenomenon because it really is a phenomenon. Israel has something very unique to offer China, and China has something very unique to offer Israel. And as a result, trade between the two countries is going through a dramatic change. If it weren’t for political complications, the trade would have been there long before.

SIGNAL: So, to build off on that point, can you elaborate on that? What does Israel have to offer to China, and vice versa?

DORIAN BARAK: If you take twenty Chinese engineers who are working for the same company and you ask them: “What are you developing?”, they’ll all give you the same answer. If you pick twenty engineers from Israel who are working for the same company and you ask them: “What are you developing?”, they’ll all give you different answers, and when you ask them “Who’s in charge?” everybody will point in different directions. The point is: Israelis are remarkably un-hierarchical. It’s because of that, that it’s very challenging to have large international companies here. But by the same token, Israelis have a very easy time innovating. It comes naturally to them. More naturally, I would say, than any other people I’ve encountered. Thinking outside the box, thinking differently, testing innovation, challenging assumptions. Those are very Jewish, and very Israeli traits.

China, on the other hand, excels at something else. China excels at mass producing, distributing, organizing logistically, and importantly, scaling up. And with these two very different capability sets, I think you have a remarkable combination.

Israel is also different from other places where Chinese groups are interested in markets and developments because Israel is not competitive with China. There is no domestic market. So if you’re looking for a particular technology, and you’re looking at an Israeli company and an American company, your American company shareholder is always going to say: “Hmm. Not sure I need these Chinese guys. We can develop ourselves,” OR “Hmm. Not sure I want to break into the Chinese market. The domestic market is attractive enough.”

None of that happens with Israel. Korean and Japanese investors and companies—they feel competitive with the Chinese…because they are competitors with the industrially, technologically.
We don’t feel any of that, and therefore we are a very comfortable market for the Chinese to enter, to engage with, and to become players in. It’s not just about the money, it’s about a market, a way of developing things. It’s about production skills. It’s really about finding this striking balance and partnership of assets.

SIGNAL: And how did you, personally, become involved in China-Israel relations and trade?

DORIAN BARAK: Remarkably, I was selling businesses in Africa to Chinese businesses. And I began doing more and more in China, and ended up fascinated with the Chinese market. And I love it. I love China. I am a Sinophile, if that’s a term. I think there is something very unique about Chinese civilization. I feel an affinity, obviously for Israel and for the Jewish people. I also feel a connection with Chinese civilization.

There is something incredibly powerful about a civilization that is 4,000 years old; that has had geographic and linguistic and cultural consistency for a long period of time. It’s a real strength. It’s amazing to go to a culture where people can trace back their roots. Their cultural roots, their literary roots, their geographic roots—a very long time back. There aren’t very many nations that can do that. I think that that’s another similarity that the Chinese share with the Israelis, and it’s difficult to say how much it impacts this relationship. But there is a pride and purpose, I think, both in Israel and in China, that you don’t see in many places.

SIGNAL: I agree with that. Even after just being here for not even two weeks—the peoplehood, and the connection that a lot of people feel towards Israel.

DORIAN BARAK: Well, Israel opened up, and also welcomed Chinese investors like no other country in the world. Which is another strength of this relationship. For me, it’s been super exciting to ride this wave. And when the Chinese started to get interested in Africa—maybe five to seven years ago, I was very active then. I worked with many Chinese groups there. To see them come to Israel about two to three years ago—en masse—was a very heartening, exciting—super exciting thing. I’m working with a lot of different Chinese groups here that are investing in technological areas. It’s been really wonderful.

SIGNAL: And now, moving on to more of the work that you personally do, can you tell me more about Indigo and the markets that it focuses on?

DORIAN BARAK: We advise corporations, funds and private investors primarily, but not exclusively from greater China, who are investing in Israel. We’ve done about a dozen investments in the past year, in Israeli technology, and other companies. There’s a lot of Israeli tech in our ecosystem.

SIGNAL: Can you provide some examples?

DORIAN BARAK: Israel is small, but a lot of good things happen here. With 5,000 start-ups and counting—this you already know. It’s a very exciting place for technology. Israel can’t be compared in terms of the number of start-ups it has. It’s an incomparable critical mass. Here you have everybody in the party. And everyone is here. All the multinationals are here for a reason – they see that local startups have done great things. So companies like Intel, Apple, Facebook, Ebay are all in Israel.

Chinese investors are the most active among those seeking this technology. Israelis have invented a lot of things that you might not know are Israeli. We grow our tomatoes in regular water, in salty water, in dirty water, in sea water—without water, without land, in hydroponics, on the sides of buildings. Our drip-irrigation is incredible. We are the best at saving water. The second best at recycling water is Spain, where they recycle 19%. We recycle 86%. Second best is 19%. Just to give you a sense of the comparison. It’s not because it’s hot here. It’s also hot in Cyprus, and in Jordan. They don’t recycle water like we do. We have a responsible recognition of a harsh reality.

The first cellphone was developed in Israel. The first chat interface came from Israel, so WeChat has its origins in Israeli technology. Motorola did their cell-phone here. Our cows are the most productive in the world. Our commercial dairy is one of the biggest in the world. Smaller than America’s of course, but impressive. And that’s why Chinese companies have started to invest in Israeli dairy companies. We’re a global leader in satellites, which is amazing because we are the size of an island.

SIGNAL: So why is Israel so successful?

DORIAN BARAK: We think differently, we think constructively. Everybody you meet who’s in a tech company started their career—almost everybody—in the military where they learned a particular skillset at a very young age. How to code, computer vision, big data. They learn those skills. And they learn to apply them in all kinds of weird and wacky situations. That taught them how to think and solve those problems. That’s what they were taught to do. Even Israeli kids today—my kids have three math books, a notebook. My daughter who’s ten, is carrying a bag with 19 books in there. In America you had one book and that’s it. Everything is in one book. That’s your math, and after three months you throw it away and you get a new one. Here they have tons of books. My kids are studying history, and they have five different reference books and the Torah. And they have to synthesize the information from the different textbooks. So, people get very good at synthesizing data.

SIGNAL: And so, how do we work?

DORIAN BARAK: We have a workforce, the government, great VC sector, and then a strong regulatory framework that makes it easy to invest. It can be cumbersome, but it is strong. You have a right to protect, and also, maybe the most important thing is that you have critical assets like guys like me who are here, who have done stuff all over the world, and we’re all in this small place.

You know, why is Silicon Valley so successful? Because you have a critical mass of capital, and professionals. You can’t underestimate that. If I have questions, I call my friends. It’s a small, very cooperative community. It’s also a very innovative community, which ties into the way that we think.

Suppose: if the world ran out of water, tomorrow, you probably want to be in Germany, or Switzerland, if you want a country that has a lot of stocks. You’d probably want to be in America if you want a country that could buy water from somewhere else. You’d want to be in Israel if you want a country that could figure out a way to do without water. Because we’ll figure it out.

You know, we ran out of water five years ago. We literally ran out of water. We literally had commercials on television to tell people NOT to use water because the country is out of water. That’s how bad it was. But we looked outside, and saw the ocean. Ocean! Why don’t we use the ocean? So, most of the desalination technology in the world comes from Israel. And now, almost all of our water is desalinated.

Where do you think Israel imports its oil from? The Middle East! We found ways to get oil from the Middle East! Our neighbors! By changing ships, going through other countries. That’s how we do it. We are a problem solving nation. Oil is very expensive here—so we put solar panels on everything! Our land is impossible! It’s totally infertile. It’s not good. So we decided to figure out how to grow things without land. Using hydroponics.

So, China and Israel are very different. China is big. Israel is small. And therefore we have different capabilities and different skills. Our ties are growing. And we have a lot of Chinese companies looking to cooperate with Israel—including some of the leading technology leaders. This is also an amazing factor. It’s not just private equity. It’s everybody.
Therefore, we at Indigo help a lot of these Chinese companies access the Israeli market. There are still a lot of cultural differences, it is very challenging for them to work with Israeli companies for all kinds of cultural reasons. There’s also differences in the way—there’s different types of shares right, like preferred shares. Preferred shares are better than regular shares. And every investor in Israel will ask for preferred shares. When the Chinese come to Israel, they look at an investment contract and they’re being offered preferred shares. Their natural reaction is: “I don’t want preferred shares, I want the same shares that you guys have.” I say: “No no, he’s offering you shares that are better. They are higher priority.” They say: “No, I want exactly what he has.” That’s a great example of cultural difference. And so, I will explain it to them, walk them through the mathematics, what they call a waterfall. And then they’ll say: “OH! No, I want the preferred shares.” But it takes time to get there.

SIGNAL: Where is the China-Israel market going?

DORIAN BARAK: So, there are two thoughts. The first thinking is that, just like Africa, after a while, Israel will become uninteresting to the Chinese investors. In Africa, investors kind of moved on as the prime assets were already taken. Some believe this will happen in Israel, and I’m sympathetic to that perspective. I however, think that the burgeoning of China-Israeli ties is in its early years, and we’re going to see significant growth in three primary areas.

First, I think that as Chinese companies begin to operate abroad in emerging markets through foreign companies that they’ve acquired, Israel is a great destination for acquisitions. And the reason is, Israeli technology companies focus exclusively on overseas activity. So if the Chinese investor wants access to the African market, they can’t just do it from China. It won’t work. They can do it from Israel.

The second thing is that I think a lot of thirst for early-stage technology may decline, if government funding for it declines. And Chinese willingness to invest in very early-stage technology startups will decline. However, the interest in attracting relatively low-cost company technology that continually innovate will remain high. And this is what you have—and currently the Chinese are tapping that market by making acquisitions and investments. They will eventually follow what every Western company has done—you’ll have Chinese conglomerates setting up development labs here in Israel. This will require a change in mindset, and willingness to have a distributive management structure, and not have it concentrated in China. I think that will happen, and it’s already happening.

I think that…just as a lot of Chinese companies are operating in Singapore, which is a convenient hub for sourcing innovative transactions in Southeast Asia, they will find similar interests in Israel, as well. I’m very positive about that. I think it holds a lot of opportunity. I think this still has a lot of legs to it.

SIGNAL: What challenges do you anticipate will impact Sino-Israel economic relations?

DORIAN BARAK: I think that the biggest challenge currently to China-Israel activity is capital restrictions in China, and the jury is still out on that one. Which way will it go? Will it be a loosening of the prohibitions on capital offshoring? Or will it continue? My sense is that they can’t have these for very long—eventually it will provoke a fierce reaction in the West. If Chinese companies continue to do this, what will be the reaction of U.S. companies that invest in China? Even if it’s in the company’s interest, there will be a lot of political unhappiness that comes along with that.

But, I also think—and maybe this is a more general thing. I think the Americans have been exceedingly naïve about China. Naïve on enforcement of trade deals, first of all, which is why the current uproar over trade conditions may have some traction. But also naïve about their belief in the way the Chinese do business. Many Americans believe it’s a closed society. But it’s not. It’s really not. Many Chinese live much freer lives than Americans, police have a much softer hand. Personal violence levels are extremely low. Personal safety is very high. China is actually a delightful place, especially if you have money, to live. And when you live in China, for most of the population, you see a future. There’s a vision of where the country is going. China is at the height of its time. China is a muscular society. And the Americans can learn a lot from it, just like the Israelis can learn a lot from it. About what it means to have a proper industrial policy, proper government guidance.

I think there’s something to learn from the Chinese model. Look at what this country has done in the past 30 years. It is historically unprecedented. It’s historically unbelievable. It’s really a congratulatory message to the Chinese leadership. There are mistakes made, both here and in the West. But what the Chinese have done is remarkable. I think people live much better lives than they’ve ever lived. Much freer lives, food security is not an issue, energy security is not an issue. Very few people have very few difficulties getting shelter, getting clothes. That’s really an amazing feat. It is a respectable model.

Dorian M. Barak is a veteran private equity investor and fund manager specializing in China. Mr. Barak is CEO of Indigo Global,a capital advisory rm, and serves on the boards of directors of companies active in the technology, natural resources and avia- tion sectors. He was formerly Head of Inter- national M&A, Finance and Strategy at Bank Hapoalim, Israel’s largest nancial group. Previously he was an attorney with Skadden, Arps, Slate and Meagher & Flom and a con- sultant with The Boston Consulting Group (BCG) in the USA. Mr. Barak holds a J.D. from Yale Law School, an M.A. from Oxford University where he studied as a Marshall Scholar, and B.A. from UCLA. Mr. Barak has served on SIGNAL’s Board since its found- ing in 2011.

Teresa Chen is an undergraduate at Yale University, and a 2017 SIGNAL Summer Associate. She is a Global Affairs major with a particular interest in U.S.-China foreign relations.

Author:Theresa Chen, SIGNAL Summer Associate, Yale ‘19
Published: 15-10-2017