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Doing Business in Israel

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.
  • In 2012, GDP growth decreased to 2.9%, from 4.6% in 2011 and 5.7% in 2010.
  • Israel’s GDP in 2012 was $246.8 billion.
  • In 2012, Per Capita GDP increased slightly to $32,200 compared to $32,200 in 2011. In 2010 it was $31,200.
  • Israel’s 2012 inflation rate remained at 2.1%, as in 2011. In 2010, the inflation rate was 2.7%.
  • Israel’s 2012 unemployment rate increased to 6.3%, compared to 5.6% in 2011 and 6.7% in 2010.
  • Exports of U.S. goods (not including diamonds) to Israel in 2012 were $8.92 billion. In 2011: $8.02 billion. In 2010, exports of U.S. goods to Israel totaled $6.8 billion.
  • U.S. imports from Israel (not including diamonds) in 2012 were $13.9. In 2011: $13.8 billion. U.S. imports from Israel in 2010 totaled $13.2 billion.

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, certain technical standards and regulatory uncertainties in the natural gas sector are non-tariff barriers. US Export Control regulations for re-exports are perceived as a challenge by Israeli manufacturers.
  • 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, renewable energy technologies, defense equipment, medical technologies and biotechnology products. Power generation and education/training also represent good opportunities.
  • U.S.-Israeli commercial linkages often consist of U.S. firms providing electronic inputs which Israeli firms integrate into final products destined for re-export.
  • 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, McDonalds, Toys-R-US, UPS, FedEx all operate in Israel.

Direct marketing is fairly common.

  • Door-to-door salesmanship is uncommon in Israel and is 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. An “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 method 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.
  • A Commercial Agents Law became effective in 2012. The law specifies advance notice of termination of a relationship related to the duration of the supplier/agent contract and monetary compensation of the agent for the loss of potential profits.
  • 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.