Israeli Arab exports, in a country near you
From liquor to jewels, pita to biofuel, businesses run by Israeli Arabs are ramping up their exports thanks to the guidance of the government’s Tevel program.
The Kawar family has kept its recipe for distilling premium arak liquor a secret for the past three generations. The recipe is based on the highest quality anise, grape alcohol and water filtered of its impurities.
A decade ago, family members from the Israeli Arab city of Nazareth decided to open an arak distillery in Israel. They modeled their business after the Jordanian branch of the family, which had set-up its own distillery in Amman decades earlier.
In 2011, brothers Anan and Alaa Kawar decided to begin exporting their arak to the United States and Canada. As part of its export efforts, the distillery received assistance from the Industry, Trade and Labor Ministry's Tevel program, which was created to assist Israeli-Arab businesses that want to start selling their products abroad.
"We don’t have the knowledge base about market behavior in other countries," says Said Salem, the distillery's CEO. "It's nothing like [selling arak] in the Israeli market. The Export Institute sent us consultants who filled in a lot of basic knowledge gaps we had."
The Kawars’ businesss, an Arab-owned company that successfully integrated the Israeli export market, is the exception rather than the norm. Why aren’t there more exports being produced by Israeli Arab-owned businesses?
Kawar believes that Arab-owned manufacturers don't receive enough support from either the national government or the regional councils in Israel.
"There are no highly-developed industrial areas in the Arab sector," says Kawar. "Necessary infrastructure is lacking and without it, it's impossible to develop [industries]. The [Arab] sector lacks significant knowledge and experience in opening up competitive international markets."
In 2011, exports from Arab-owned businesses totaled $33 million, equivalent to approximately 0.1 percent of total Israeli exports. It might be possible that this can be chalked up to a dearth of basic knowledge.
Two years ago, the Israel Export and International Cooperation Institute in cooperation with the Authority for the Economic Development of the Arab, Druze and Circassian Sectors and the Industry, Trade and Labor Ministry launched the Tevel program. Its goal was to double the number of Arab-Israeli exporters within three years.
Since the program's launch, approximately 30 companies have signed on.
Tevel grants its recipients assistance at the beginning of the export process, and it stays on to offer continuing professional advice throughout the process. Tevel consultants also help business owners with both strategic planning and execution. They play a part in creating marketing plans for foreign markets as well as pinpointing foreign distributors and customers. They also instruct business managers in the proper use of business data, logistics, how to price export orders and help them develop familiarity with the nuts and bolts of export financing.
According to the Central Bureau of Statistics, Israel's Arab population stands at 1.623 million, which is 20.6 percent of the total population. Nevertheless, the Israeli Arab sector constitutes only 7.85 percent of GDP according to data provided by the Export Institute. Likewise, according to Export Institute figures, the Israeli Arab sector has 11 percent of total business output.
Shaul Katznelson, the Export Institute's head of the Economics Department and leader of the Tevel program, says that most Arab-owned businesses are shaped around traditional family professions and expertise. Most of them are family-run and have never evolved into fully industrialized establishments. They don't have salaried managers who use scientific management principles and come to the job with previous business experience. When they launch into the international market, their family-style management tactics can create yawning gaps between the way the company is run and internationally accepted standards.
“Getting lines of credit and other types of financing can be a significant problem, because most of the businesses in this sector are small,” says Katznelson. “These types of businesses have difficulty providing collateral to banks because, among other reasons, they rarely hold a proper deed of ownership for their property at the land registry office. Besides, there is a shortage of industrial zones set aside for use by the [Arab] sector, something which makes it very difficult for companies interested in becoming truly industrial entities and expanding their operations. A large portion of Arab-owned companies operate out of residential areas, in premises that aren't fit for export-oriented factories. As a result, they have problems meeting international standards, the kind that are required even for exports in traditional economic sectors, like food. Likewise, until very recently, the Arab sector wasn't aware of the different types of support provided by the state to exporters. Consequently, only a minority of Arab-owned business took advantage of these benefits to develop their export capabilities."
Export Institute chairman Ramzi Gabbay says that the only way to shift the balance is to bring Israeli Arab businesses into the fold. “Increasing the Arab sector's share of GDP by creating economic sustenance for Israel’s Arab population will only happen when there is a significant growth in the sector's exports and Arab employees are included in Israeli export companies," he says.
Pitas worth 60,000 euro
"Being export-capable improves [a company's] level of management and product quality," says Izdihar Ghanem, the co-manager and co-owner, along with Omar Ghanem, of the Omar al-Saba bakery in Baka al-Garbiyeh, an Arab town in central Israel. The bakery produces laffas (Iraqi-style pita bread) and pitas, including small-sized pitas weighing 24 grams each.
The Ghanems’ bakery was established in 1985. About a year and a half ago, the owners began participating in the Tevel program in order to begin exporting their pitas. The first shipment of the bakery's pitas to Switzerland was worth 5,550 euro. Since then, international customers have munched on 60,000 euro worth of pitas.
"My dream is to transform the business into an exporter," says Ghanem. "It was important for us to prepare ourselves for every stage of the export process in line with the guidance provided to us by the Export Institute. As part of the process, we were asked to significantly upgrade our infrastructure.”
So upgrade they did: the bakery even got a new identity, and is now called Sa’aba Mediterranean Bakery. Improved technology is in the pipeline.
“We will also soon be launching a new website for our customers abroad,” she says. “We also developed a new product line, flavored pitas, which have become very successful, and our crowning achievement is the establishment of a factory in the Bar Lev Industrial Zone in Acre that meets the HACCP [Hazard Analysis & Critical Control Points] food safety standards."
In February 2012 a delegation of food buyers from the Mexican retail chain H-E-B, which operates primarily in Texas and Mexico, arrived in Israel. Ghanem’s bakery flaunted its pitas at the Export Institute as part of a display with other manufacturers. The buyers expressed interest in the pitas and in the coming months the bakery expects to export its products to the approximately 300 H-E-B chain locations in the U.S. In September, Ghanem says, they will also begin exporting to Switzerland.
A matter of chance
Sometimes you also need luck, and Jamal Hamoud seems to have luck aplenty.
Hamoud is the owner and manager of Aya Natural, a manufacturer of natural cosmetics made from olive oil. The company, based in the Druze village of Beit Jann in northern Israel, has 10 employees.
Hamoud, a lieutenant-colonel in the reserves in the IDF’s Medical Corps, established the company in 2004. He started exporting in 2009 after a chance meeting. “
The beginning was not planned. Call it fate, or the hand of God,” he said. “An Israeli businessman who lives in Japan went to Kiryat Shmona looking for olive-oil-based soap. By chance, he heard about our company and came to Beit Jann. Because of that meeting, in the last quarter of 2009 we sent a $30,000 shipment to Japan. The exports continued in 2010, but the tsunami slowed business and export,” he said.
Exports to the U.S. were added on with the help of a personal connection with Roee Madai, who was then serving as consul for economic affairs there. Madai was introduced to Aya Natural when he worked for the Industry, Trade and Labor Ministry. The business was in its infancy and he became a huge supporter, so much so that when he relocated to the U.S. he did the legwork required to set up export connections. The contract was inked in 2010, and this year, Hamoud says, they estimate exports will reach $200,000.
The company soon made the radar of the Export Institute, and even though it already had a foothold in the export market, it suggested they join the Tevel program. It was, Hamoud says, an excellent move.
“The program taught me a lot,” he says. “I learned where to invest and how to do the export process in an efficient and well-organized way. I realized that in order to produce enough for export, I would have to develop and enlarge my factory.”
And the support from on high, Hamoud says, has been excellent. “The representatives of the Export Institute work closely with me. They also help me with subjects that are not directly connected with export, such as allocation of land for building the factory. They are also opening the right doors for me. Also, this month I’m scheduled to meet with buyers from South Korea, Russia and Ukraine. At the moment, I’m still cautious during these meetings because I don’t have the ability to manufacture and export large quantities. I also have strong business connections with the Palestinian Authority, and I hope to export to the Arab world through them. I want to become a big exporter who stays in the Galilee region and provides a livelihood to the people who live in the village,” Hamoud said.
The family jewelers
Although Kattouf Jewellery Manufacturers began exporting to the U.S. in 1989, the company joined the Tevel program in 2010 in order to expand its exports to other countries. The company was founded by family patriarch Jad Kattouf in 1907. Jad’s two sons, Hanna and Basila, expanded the business, and the third generation – Bishara, Najeeb and Bassam – manage it today, with branches in Nazareth and in villages in the Galilee. In 2008, the company transferred its factory, with its 15 employees, to the Tzipporit industrial zone in Upper Nazareth.
Kattouf Jewellery joined Tevel in 2010. By 2011, its exports through the program reached $498,000. In 2012, the company is expected to increase its exports to more than 1 million dollars. Bishara Kattouf said that the Tevel program has helped his company mainly in managing the market abroad and in participating in industry shows.
When asked why there are not more exporters in the Arab sector, Bishara said that lack of connections could be part of the problem. In addition, he said, “Export is not just a matter of deciding. You have to have a product of very high quality that can compete in markets in the Far East, and not everyone is capable of doing that. You also have to invest in industry shows, advertising and agents abroad, and not everyone can afford that.”
From fat to fuel
Trans Biodiesel, located in the northern Arab city of Shfaram, is currently in talks with a French company for a deal that, if successful, will reach half a million dollars in 2013, according to Dr. Ahmed Tafesh, the company’s VP for new business development and CTO. Trans Biodiesel develops new technology for manufacturing biodiesel fuel from natural enzymes that turn used fats into biodiesel fuel. The company, which has eight employees, had a turnover of $1 million in 2011.
Trans Biodiesel joined up with Tevel to try and forge its way into new markets. Tafesh says that when he joined Tevel, the company was already exporting to the U.S. and the Netherlands, but ran into trouble when it tried to develop other markets, such as France, which is considered the world’s second-largest market in the field of biodiesel fuel. About two months ago, Dr. Basheer Sobhi, the company’s founder and CEO, met with officials of five of France’s leading biodiesel firms, including Diester. This month, representatives of Diester are expected to come to Israel for an official visit.