Stanley Blau, the president of a small New York telecommunications firm, was approached by an Israeli businessman a few years ago with an intriguing proposition: Would he go to Israel and help a subsidiary of the giant Koor industrial conglomerate develop a telephone switching system that could be marketed in the United States?
As a result of those discussions, Blau and the Israelis came up with the Key Bx -- a piece of telephone equipment designed for small businesses that is being marketed in 11 countries. The system is being used by about 6,000 businesses in the United States alone, and sales are expected to be about $25 million this year.
That would make the Key Bx something of a success story for the U.S. and Israeli businessmen who developed it. But according to some of those involved, it might never have gotten off the ground had it not been for an unusual joint U.S.-Israeli financing agency called the Binational Industrial Research and Development Foundation (BIRD) that is providing millions of dollars in seed money for joint-venture companies operating in both countries.
Hatched in 1978 with $60 million in U.S. and Israeli government funds, BIRD was intended as a sort of high-technology bank that would marry Israeli technical expertise with American entreprenuerial savvy. The idea was to finance new technological products that also could meet the age-old market test: Will it sell?
Today, Reagan administration officials say some of these products have sold so well that they want to use BIRD as a blueprint for economic aid programs in other developing nations. They also recently pumped another $25 million into the BIRD bank -- to be matched by the Israeli government -- as part of an overall $60 million increase in economic aid to Israel approved by Congress last year.
"I've been really amazed by the success of this," said Bruce Merrifield, assistant secretary of Commerce for productivity, technology and innovation, and BIRD's biggest booster in the administration.
Merrifield expects to go to India within the next few weeks to sign an agreement that will create a BIRD-type agency using funds transferred from Agency for International Development programs. There also have been discussions about setting up similar arrangements in the Caribbean and even in some European nations.
"What this can do is bring a bottom-up entrepreneurial revolution to some of these countries," Merrifield said. "The objective is to build a technological infrastructure in each of these countries so they can earn some foreign exchange and pay us back some of the $850 billion in debt they owe us.
"So it's really in our national interest," he said. "This has significant ramifications that go beyond just creating a few jobs."
Yet any significant expansion of BIRD also could raise questions about about who benefits from such programs. Administration officials acknowledge, for example, that BIRD isn't just for struggling entrepreneurs: Many of the country's biggest corporations, such as Motorola Inc., Grumman Corp., General Mills Inc. and Martin Marietta Corp., have received funding for Israeli joint ventures that clearly would not be available under normal market arrangements.
Moreover, despite a few widely heralded successes, most BIRD-funded projects have yet to yield any substantial dividends. But this doesn't bother A. I. Mlavsky, the agency's articulate executive director in Tel Aviv.
"We're here to produce intelligent risk-taking, not to bet on sure things," he said after giving a talk on BIRD at the Commerce Department last week. "When our success rate gets too high, it's time for us to go out of business."
Still, there is little doubt BIRD has helped fill a void in the Israeli economy. Israel always has had a highly skilled, scientifically trained labor force that, in many respects, was well-suited for the emerging high tech age.
What the Israelis lacked, however, was a capitalist ethos that could translate technological virtuosity into commercial success, according to many U.S. and Israeli officials who have worked on BIRD. Founded for the most part by European socialist immigrants and ruled by a Labor Party government during its first 30 years as a nation, Israel was losing out in the world markets partly because the Israelis were not used to the rigors of a domestic marketplace.
"From our point of view, what we've seen happening with BIRD has been a spirit of entrepeneurship being developed in Israel that was not as prevalent as before," said David Goldman, a Commerce Department official. "It has really forced people to look and see if what they were doing would be a commercial success.
"They didn't pay attention to that kind of thing before," he added. "The usual idea would be, 'I've invented something, and now people should go out and buy it. . . .' With BIRD, we've put a little bit of the American entrepreneural spirit into a friendly country."
Dan Halperin, economic minister at the Israeli Embassy here, doesn't disagree. "We are second to nobody in scientific training, but in the marketing area we're still making our first steps," he said.
The program has worked this way: In 1978, the U.S. and Israeli governments each deposited $30 million into a bank account in Israel, the interest on which -- about $5 million a year -- was to serve as the working capital for BIRD. These funds are used to finance up to half of the proposed cost of joint U.S.-Israeli private-sector projects, with a cap of $1.5 million per project spread over three years.
If the projects flop, BIRD eats the cost. If they succeed, the companies are obligated to pay back 150 percent of their "conditional grants" from their profits.
According to the latest BIRD figures, the agency had invested a total of about $21 million in 76 projects, including such products as a new computerized drip irrigation system, a fertilizer injection pump, solar energy heaters, and new heart valves and other medical technologies.
These projects, in turn, have accounted for an estimated $96 million in sales. Current estimates are that this figure will climb to $150 million by the end of 1985. Yet as of last week, only about six projects had earned enough money to begin paying back their grants to BIRD, according to Mlavsky. The foundation has received about $1.5 million in paybacks over the past 18 months, he said.
One success often cited by BIRD officials is a computerized irrigation system developed by Motorola, in conjunction with its wholly owned subsidiary, Motorola Israel Ltd. Thanks to a $831,000 grant from BIRD, the Motorola system is being used to irrigate more than 500 farms, golf courses, lawns and other properties, according to a Motorola spokesman.
Another is Key Bx, which is now being marketed in the United States by Telrad Inc., an Israeli-owned subsidiary of Koor with a distribution office in suburban Long Island.
"We built it up within an 18-month period into a $20 million-a-year business," says said Blau, who has since has handed over complete control of the U.S. marketing to the Israelis.