With a population of 6.8 million, in an area roughly the size of New Jersey, the Economist ranked Israel 4th among emerging markets in June 2004, and 3rd in the world for U.S. patents per capita, following Japan and Taiwan.
Leading sectors for Israeli export and investment are primarily hi-tech and defense with U.S. imports for defense accounting for approximately $2 billion. However there are also promising market opportunities for safety and security equipment and services, medical equipment & biotechnology products, as well as educational services.
The United States is currently Israel’s largest single country trade partner, despite heavy European competition with $9.2 billion in U.S. exports recorded in 2004. Moreover, Israel’s commercial relationship with the United States has developed rapidly since the signing of the Free Trade Area Agreement (FTAA) in 1985 and since 1995, nearly all tariffs on trade between U.S. and Israel have been eliminated.
Tips on how to enter the market
The best way to enter a business relationship in Israel is to identify the appropriate distribution and sales channels, as they vary by the type of product. For example, industrial equipment, raw materials and commodities manufacturers use non-stocking commissioned agents, while stocking agents represent high volume items. Agents will often insist on exclusivity due to the small size of the country. Most consumer goods are sold through importers and distributors, but increasingly large retail chains and department stores import directly without intermediaries. In most cases, distribution firms serve the entire country.
Methods of doing business in Israel
Franchising is an increasingly popular method of doing business in Israel since its introduction to the local market in the mid-1980s. Its popularity is particularly high in the fast food restaurant sector with the U.S. share of the Israeli fast food franchising market exceeding 50%. Franchising has also penetrated other industry sectors such as ACE Hardware and Office Depot as well as Toys-R-Us.
Direct marketing is also fairly common, door-to-door sales is not popular in Israel, however satellite and TV shopping channels, direct marketing through mail order catalogs, telemarketing and internet shopping are growing in popularity.
Joint Ventures: The Israeli government encourages joint ventures and licensing where a five year agreement with an automatic renewable clause is generally sought.
Local industries generally prefer to purchase goods through an agent who will be able to provide after-sales service. Government entities and government-owned industries will often require an agent in the market. One of the first issues a potential agent will raise with an overseas manufacturer is the possibility of exclusivity, and the vast majority of agencies have exclusive representation rights.
Selling to the Government
Israel is a signatory to the WTO government procurement code. Under the 1993 Public Procurement Law, all Government of Israel (GOI) entities and government-owned companies are required to procure goods or services by issuing a tender. In 1995, the Knesset approved the Preference for Israeli Products regulations and the Mandatory Commercial Cooperation regulations.
The “Preference for Israeli Products” regulations stipulate that a 15% preference may be given to Israeli manufacturers for certain items exempted by the WTO and for products with at least 35% Israeli content and with a value not exceeding 355,000 SDR (approximately $500,000). Israeli manufacturers in “National Priority Zones” receive an additional 5-15% advantage.
Foreign ownership and partnerships of Israeli companies
Overseas firms can operate in Israel as foreign companies, as foreign partnerships or by establishing a branch office. There are no restrictions on foreign ownership of Israeli companies or securities. Firms interested in establishing an office in Israel are required to register with the Registrar of Companies at the Ministry of Justice.