Don't Bury the Textile Industry Just Yet

For all the wailing, Kitan closing its plant in Dimona is an economic non-event. Nor does it symbolize the last breath of an ailing sector.

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Kitan closing its textile plant in Dimona and sacking its 40 remaining employees will have few economic consequences, apart from increasing unemployment in a town that already has its fair share of economic woes.  That the closure got so much media attention is the supposed symbolism of the event – the extinguishing of the last dying ember of a once vibrant textile industry.

Where once the factories of Kitan and other Israeli textile companies were run around the clock churning out textile and apparels and providing jobs for thousands, we’ve been told, the industry has been reduced to a gaggle of overpaid executives and sullen store clerks hawking cheap garments made in Asian sweatshops.

The fact is that neither was the past so glorious, nor is the present quite so terrible.

Israel’s textile industry did have its moment in history, in the sense that it got a lot of government attention that enabled it to grow and expand. In that respect it was a strange bird – neither a state-owned enterprise nor a part of the Histadrut-controlled business empire nor quite in private hands. A small industry started by Polish and German immigrants before World War II, it was all but seized by the government at the end of the 1950s as part of a national mission to generate exports, create jobs and disperse the population into development towns. For a while government investment in Israeli textiles reached nearly 10% of defense spending.

Kitan, which was formed in 1958 and operated plants in the Negev and Galilee that employed thousands at its peak, did its job admirably even if Israel never became quite a textile power. As recently as 30 years ago, on the eve of the high-tech revolution, the textile and clothing industry employed about 46,000  people, or 15% of the industrial workforce.

But even then the world was changing. The manufacture of textiles and other factory goods had ceased to be a monopoly of North America and Europe as more and more countries had learned the skills to make and market industrial products. First it was Japan and as time went on Taiwan, South Korea and China. Now industry has reached places like Bangladesh and Vietnam, which can compete at the bottom rungs of the industrial ladder.

It’s not just the Israeli textile industry that could not withstand the new lower-cost competition. The industry faltered everywhere in the West except in the rarefied domains of high fashion.

Kitan itself effectively died a long time ago. Much like Maariv, it was kept on life support largely to preserve the good name of Nochi Dankner, the tycoon who owned the company. But once he sold Kitan’s  parent company Clal Industries to a foreign investor in May, there was little hope the textile manufacturing operations could or would survive.  Kitan was such a minor part of the Clal empire that its last annual report for 2011 barely troubles to mention it except in connection with a pesky lawsuit.

A paragon in underwear

Yet in spite of all this, Israel still has a textile industry, although it doesn’t get much attention because it has neither start-up companies that win praise from the media or politicians, nor is it a tycoon-manipulated monopoly that attracts their wrath. But the industry should not be overlooked.

To put things into proportion, the typical start-up has fewer people than Kitan fired in Dimona this week.

Take Delta Galil, which has the double misfortune of not being a start-up and operating in the lowly underwear business. Yet the company is a paragon of the kind of knowledge economy Israel should be aspiring to, an economy not based entirely on tiny start-ups but on using innovation and creativity to create a broad range of jobs and sustainable businesses.

Delta combines both with creative design, branding and high tech manufacturing processes. As of year-end 2011 it employed  more than 7,000 people. Of those, only 1,600 are in Israel (let’s face it, you still can’t make a price-competitive bra here), and the rest are in places like Egypt, Jordan, Thailand and Bulgaria.  Israelis may be a minority among the Delta workforce but they provide the greatest added value: they engage in the most sophisticated parts of the manufacturing process as well as in design, marketing and management where creativity, not cost, is the decisive factor.

Tefron, albeit with serious bumps along the way that have seen its revenue fall by nearly half in the past three years, adopted the same model. Nilit turns out branded nylon yarns and thermoplastics using proprietary technology and employs 1,400 people, 650 of them in Israel. Ofis Textile offers design services as well as production of home textile and is eventually going to move its operations to Dimona, hiring more people than Kitan had on its payroll in its last days.

High tech companies rarely provide the same quantity or range of jobs.  Check Point Software Technologies, one of the biggest in the sector, employed about 2,400 people at the end of 2011, a third of the Delta Galil payroll. Of those, 2,400, only about 1,100 were working in Israel, fewer than who work for Delta Galil. Software multinational Amdocs had close to 20,000 on its payroll, of whom 4,300 were in Israel -- but it employed more people in North America (4,800) and India (6,600).  

As is often the case in Israeli industry, the textile firms that thrive, do it because there is someone at the top with enough vision and wherewithal.

Eli Hurvitz built Teva Pharmaceutical Industries. Stef Wertheimer built Iscar, but Israel never did develop a real pharmaceuticals or machine tools industry because their success was personal.

Once upon a time the state invested in industry, like textiles, even if its investments were poorly conceived and bumbling. Pinchas Sapir, the finance minister behind the statist industrial policy in decades of yore, once said, “The State of Israel was built neither with an accountant's book nor a statistical table, but with the heart,” which isn’t the key to successful industrial policy.

Forgetting that it can no longer order up industries from wealthy Diaspora Jews or the labor unions, nowadays the state does nothing at all.

Infrastructure is poor, regulations are a heavy burden and the educational system is failing to produce the people who can compete in the one way Israel stands a chance, via innovation and creativity. To that, we can add a government that seems determined to create political crises and alienate customers and investors overseas, as it did this week. If something doesn’t change, the media may one day rue the end of an era, as Check Point lays off its last few employees.

The Kitan textile plant in Dimona is closing up shop and laying off its remaining employees, succumbing to an industry-wide global reality.Credit: Ilan Assayag
Kitan workers in front of the plant, December 2, 2012. Credit: Ilan Assayag

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