Doing Business in Israel

An Expert's View about Business Environment in Israel

Last updated: 24 Feb 2011

Market Overview

• The U.S. is Israel's largest single country trade partner. Since signing a Free Trade Agreement in 1985, Israel–US trade has grown eight-fold. Since 1995 nearly all trade tariffs between the U.S. and Israel have been eliminated.

• Israel’s GDP growth in 2009 dropped to 0.5%, largely as a result of the global economic slowdown. The Bank of Israel predicts 3.5% growth in 2010. The economy grew 4% in 2008; 5.2% in 2007; 5.3% in 2006 and 5.1% in 2005.

• Israel’s GDP in 2009 was $200 billion.

• Per-capita GDP in Israel contracted by 1.3% in 2009 to $26,100 after growing 2.2% in 2008.

• Israel’s 2009 inflation rate was 4%. This follows five years of low inflation, including: 3.5% in 2008, 2.1% in 2007, slightly negative inflation in 2006, and 1.3% in 2005.

• Israel’s 2009 unemployment rate 7.7%. This was an increase over the 2008 figure of 6.1%, largely because of the global economic slowdown. Israel’s unemployment was 7.3% in 2007, 8.4% in 2006, 9% in 2005 and 10.4% in 2004.

• Exports of U.S. goods to Israel during the first 11 months of 2009 totaled US$8.64 billion. During the first 11 months of 2008, exports of U.S. goods to Israel totaled US$13.49 billion.

• During the first 11 months of 2009, U.S. imports from Israel totaled $17.03 billion. During the same period, the United States imported US$20.36 billion from Israel.

 

Market Challenges

• Israel is a mature market in many sectors and U.S. companies will face significant local and international competition.

• Agriculture trade regulations, IPR protection weaknesses and certain technical standards are non-tariff barriers.

• The political and security environment is tense because of the geopolitical neighborhood.

• The business environment and style will seem familiar to Americans, though dress may seem more informal and personal relationships sometimes play a greater role.

 

Market Opportunities

• Hi-tech and defense dominate Israel's trade numbers, and Israel remains a global center for hi-tech design and R&D. Hi-tech continues to provide opportunities for U.S.-Israel commercial partnerships, specifically in ICT technologies, safety and security equipment and services, natural gas and renewable energy technologies, defense equipment, medical technologies and biotechnology products. Power generation and education/training also represent other good opportunities.

• U.S.-Israeli commercial linkages often consist of U.S. firms providing electronic inputs which Israeli firms integrate into final products that are often re-exported.

• Road technology and infrastructure projects could offer millions of dollars worth of export opportunities for U.S. firms over the next five years, especially since Israel adopted U.S. standards in intelligent transportation systems.

 

Market Entry Strategy

Distribution methods vary by type of product. • Commissioned Agents: used mainly for industrial equipment, raw materials and commodities.

• Non-Stocking Agents: used mainly by manufacturers.

• Stocking Agents: used mainly for high volume items.

• Importers/distributors: used often for consumer goods.

• Franchising: since its introduction to Israel in the mid-1980s, franchises have increased in popularity. ACE Hardware, Office Depot, Re/MAX and Toys-R-US all operate in Israel. The U.S. share of the fast food franchise market exceeds 50%. Direct marketing is fairly common.

• Door-to-door salesmanship is uncommon in Israel and considered a nuisance.

• Cable and satellite TV offer shopping channels.

• Direct marketing is common through mail order booklets that are distributed monthly by credit card companies and through the Internet. A new “opt-in” spam law was introduced to Israel in late 2008. Companies can only send individuals spam if the individual agrees in advance. Political and charity mailings are exempt.

• Telephone marketing is increasingly common, but with mixed results.

• Internet use in Israel is widespread and represents a good marketing avenue. The Government of Israel encourages both joint ventures and licensing.

• Joint ventures are the most popular methods of cooperation for Israeli firms, especially in technology-related industries.

• Israeli businesses prefer obtaining five-year licensing agreements with automatically renewable clauses that extend the agreement for another five years.

• Manufacturing under licensing agreements is common in Israel.

• Israeli businesses prefer licensing agreements in which the licensor takes equity with the licensee.

• The norm for royalties is 4-5% of turnover. Higher rates are common for luxury articles, author's fees and specialized machinery.

• A 10-15% withholding tax on royalties and fees is often deducted at the source.

• Licensees may repatriate royalties through an authorized bank, and are entitled to claim an income tax deduction on royalties and fee payments.

• U.S. companies should seek advice from a respected law firm and accounting firm when figuring tax liabilities.

• The United States and Israel have signed a tax treaty to avoid double taxation.

 

 

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Posted: 18 August 2010, last updated 24 February 2011

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