Why has Australia been ignoring an export market with huge potential?
Joe Parkes reports on what it takes to do business with Israel, looking at established agreements and emerging partnerships.
A new drive by small and medium size exporters is beginning to impact on one of Australia’s curious trading anomalies: our relatively modest export sales to Israel.
Israel’s annual merchandise purchase from Australia rarely exceeds $173 million while our biggest Middle East customer, the United Arab Emirates, currently buys around $1.3 billion worth of products and services from Australia each year.
But fresh enthusiasm is emerging for sales to Israel, driven partly by friendly rivalry between Queensland and Victoria for a greater slice of the export pie.
Queensland Premier, Peter Beattie, has declared he wants his state to become the major focus of Australian business with Israel, while Victoria has scored a coup with the recent signing of an agreement to establish a Victoria–Israel Science and Technology R&D Fund, or Vistech, which will fund up to 50 percent of eligible, joint R&D costs of Victorian–-Israeli market-oriented projects.
Not to be outdone, Queensland has announced that a small, state-based corporate research centre (CRC) for global software company SAP is making a “significant contribution” to SAP portals in Israel which have become the primary IT solutions provider for the Israeli Government.
Some may regard the refreshed interest in Israel as long overdue. Australia has been trading with Israel since the late 1940s. As an important established source of knowledge transfer for Australian industry, Israel is a wealthy market of 6.6 million people, with a broad menu of positive market attractions: largely European tastes, significant family ties down-under, a hunger for anything new and a GDP bigger than New Zealand or Spain.
So why has it remained such a comparatively small target for Australian products and services? And does it have to be that way? According to Nili Shalev, Israel’s trade commissioner in Sydney, many Australian exporters, including SMEs, don’t think of Israel as a ‘real’ market. “Maybe there is a perception that doing business in Israel creates barriers to Australian exporters dealing with the Arab states,” she suggests. “I don’t believe this is the case. You can trade with both Arabs and Israelis and not suffer any economic harm.”
Austrade’s chief economist, Tim Harcourt, agrees. “Evidence shows that many Australian exporters who export to Israel also export to many other Middle East countries,” he says.
Australia’s senior trade commissioner in Dubai, Peter Linford, paints a slightly different picture. “There are restrictions on Israel-related companies doing business [in the Middle East],” he says. “But it varies from country to country, and depends on how visible [the activity] is. I think you could be closed out of some markets and some industry segments in the Middle East if it is clearly demonstrated that your business is happening with Israel.
“That said, informally there are companies successfully doing business with both areas, but it’s never in your face or promoted as such. I would say if [trade with both sides] does happen, it most likely will be somewhere like the UAE as opposed to Iran or Saudi Arabia. It is a sensitive question, as you might imagine.
“I have been asked in the past if it is safe for people of Jewish background to travel in the region and generally I have said yes.”
Interest in Israel Exports
Perhaps Australia’s rekindled interest in Israel is being encouraged by a move away from the concept of traditional ‘commodities in boxes’ exports to more innovative and imaginative products and services.
Queensland’s export focus includes airborne electrical services for Israel’s biggest power company, a collaboration agreement to develop CIT software for global customers, and a Memorandum of Understanding (MoU) to jointly cultivate Australian native flowers for supply to world markets.
Exporters outside Queensland and Victoria are also showing revived interest in the Israeli market. Shalev is especially enthusiastic about recent sales of Australian food products to Israel, including the very successful introduction of a kosher version of Arnott’s Tim Tam biscuits. “This is not a gimmick, they’re selling about 700,000 packets a year at 15 shekels ($4.70) each,” she says. “The majority of Israelis want to eat kosher food and Arnott’s went to the trouble of developing a kosher Tim Tam, which is catching on quite nicely.”
Israel does buy substantial numbers of live animals from Australia, mainly because Australia does not have kosher accredited export slaughter facilities, despite the existence of Muslim halal export slaughter arrangements. A number of veterinarian issues also await resolution with regard to possible meat sales.
“Properly developed, Israel could become a major market for Australia,” Shalev says. “Both are relatively young countries with some cultural differences, but both peoples are open, relaxed, informal and very approachable, and they share surprisingly similar challenges, such as security threats, water shortages and soil salinity.
“Israelis adapt to change quite fast so they are always looking for new products and ideas in the consumer markets. Israelis like to explore and experiment with things that are unique and exciting. They are always ready to look at something new.”
Market Quality
It’s hoped Australia’s revived focus on the market could lead to an improvement on its substantial merchandise sales deficit with Israel—$411 million in 2004-05, or nearly 70 percent of total bilateral trade. Australia is Israel’s 19th most important export destination, but only ranks 39th on its list of overseas suppliers, providing just 1.2 per cent of its overseas purchases of products and services.
Tim Harcourt urges Australian exporters not to dismiss Israel before checking out the market quality, not just the quantity.
“The quality of our trading relationship matters too,” he explains. “Israel’s political machinations usually have little impact on business and there’s broad support for an open, liberal economy.”
According to the Australian Bureau of Statistics (ABS), Australia’s big ticket sales to Israel in 2004-05 were a worthy collection: coal (which appears to be in decline), live animals, flat-rolled alloy steel products, pearls and diamonds, and veterinary medications. Smaller, but increasingly important sales are being made in areas like IT, education services, agrotechnology, machinery and components.
Australian Bureau of Agricultural Resource Economics (ABARE) research shows there are altogether 520 Australian exporters doing business with Israel, a figure that seems curiously at odds with the value of total merchandise exports.
Aeropower in Israel
One SME that has achieved hard-won but excellent results from its move into Israel is Queensland-based Aeropower, which uses helicopters to provide airborne electrical services to power companies. General manager, David Salmon, says the company began putting out feelers for international project work soon after it was founded in 1991.
< br />One of the initial positive responses came from the country’s biggest company, Israel Electric Corporation (IEC), looking for alternatives to expensive local maintenance services. “After several years of communicating with us, IEC saw the benefit of Aeropower’s services,” he says. “We then went through a three-year tender process; then the tender was cancelled, reissued, and technical and financial reviews were conducted by IEC before the final award was received by our company. Now we provide IEC with a range of services including support for cable stringing—pulling out draw wires from structure to structure—airborne line maintenance services, which support activities like aerial marker ball installation and live-line insulator washing on their overhead power lines.
“All the work is done using helicopters. We have two helicopters based in Israel and we employ all local staff including our Israeli chief pilot, operations manager, ground support personnel and a number of contracted Israeli pilots. All our pilots have had previous experience in the Israeli Army and are well qualified.”
The experience has been a huge learning curve, and IEC now provide Aeropower with nearly 20 percent of its income and the company had just renewed its contract for another three years.
Salmon advises Australian SMEs looking for business in Israel to be prepared to establish performance bonds in the event of either party being unable to fulfil the contract. Aeropower organised its bonds with the support of its local bank and their affiliated bank in Israel. Also, all bonds had to be covered by an insurance policy, which was provided by EFIC.
“Anyone interested in the Israel market should prepare themselves with the three Ps: patience, presence and persistence,” he says. “Get an extremely good agent and then take on board their advice, while never ignoring your own gut feeling.”
Although the company has benefited considerably from the international exposure from working in Israel, success has not come easily. “The Israelis are really hard negotiators and they’re extremely good at obtaining the best possible price for the business they contract,” he explains. “We found that in everything we did either with IEC or with private enterprise—from hiring a car to engaging a lawyer—it is really hard work concluding the deal. It’s important to decide on a cut-off point beyond which you will not go.”
Even when negotiating was over, there were still cultural matters to deal with, such as being telephoned any time of the night. “We finally had to tell them there were certain times to call Australia,” he explains of the early days. “They seemed to have no concept of different time zones.”
Software giant, SAP, is enthusiastic about the success of its Queensland corporate research centre in providing IT solutions for the Israeli Government. Basically, the Queensland centre collaborates with SAP portals in Israel to develop software it provides for the government in Israel and for the company’s global customers.
The arrangement was announced during the Queensland Government’s most recent trade mission to Israel. The mission also led to an MoU between the University of Queensland and the Agricultural Research Organisation of Israel for a ‘Floriculture Partnership’ to increase exports and jobs in that industry.
Israel is currently one of the world’s largest exporters of Australian native flowers like Kangaroo Paws. The MoU could lead to native flowers developed jointly between Queensland and Israel being offered all over the world.
Doing Business In Israel
Etiquette
Suits and ties are generally not worn at business meetings. Israelis are renowned negotiators, so be prepared. Keep plenty of business cards handy as they are almost as popular in Israel as in Japan.
The Rules
All importers must be Israeli citizens or employed by a registered Israeli company.
The bribing of officials in Israel is a crime. Kosher food exporters must obtain kosher certificates from the Chief Rabbinat. Imports from Australia are subject to Israel’s ‘general rate’ of tariff. The WTO Customs Valuation code is used in most cases, based on the CIF (cost, insurance, freight) price.
Labelling
Labelling requirements are strict and must be in Hebrew, including country of origin, names and addresses of producers and importers, contents, weight and volume. Non-metric packaging is permitted if pricing in standard metric units is provided.
Competition
Major American and European suppliers to the market use sophisticated marketing strategies. Australians are urged to stake a claim in a particular niche and then market aggressively.
Taxation
Israel levies 18 percent value added tax (VAT) on almost all products. Purchase taxes range from 25 to 95 percent on consumer items.
Establishing an office
Reporting requirements to the Registrar of Companies are strict but clear and transparent. No minimum capital is required; one shareholder is sufficient but establishment costs are high. Consider a local distributor or marketer.
Vistech
With no natural resources to speak of, Israel has had to create its own wealth and has emerged with flying colours, boasting the world’s second largest number of companies on the hi-tech NASDAQ stock exchange. Only North America has more.
And Israel’s success is now opening doors for Australian hi-tech research companies, especially those in Victoria.
Last December the Victorian State Government signed an agreement with Israel to establish the Victoria–Israel Science and Technology R&D Fund, or Vistech, which will fund up to 50 percent of eligible, joint R&D costs of Victorian–Israeli market-oriented projects.
Victoria-based companies can pair with Israeli firms to create productive partnerships in pursuits such as biotechnology, nanotechnology, water, environment, synchrotron and IC&T.
Nili Shalev, Israel’s Sydney-based trade commissioner says there are “vast opportunities” for the two countries to cooperate in this field.
