Israel as a potential business destination: economic and political analysis

Nations and Nationalism since 1780? For E.J. Hobsbawm

Analysis of Israel as Potential Destination for Conducting Business

Based on the opportunities created by globalization and market liberalization, more and more economic agents cross boundaries to geographically expand their businesses. The Middle East is generally a controversial territory, one in which contrasts are obvious between the few rich ones directly involved in the oil business and the poor majority, which finds it difficult to get skilled jobs or conduct agricultural activities to increase their food sustainability. Despite its location in this land, Israel is fairly different from its neighbors through elements such as reduced oil supplies or economic and industrial diversification. The aim of this report is to critically assess the country and offer a solid conclusion whether or not the opening of businesses here would be a desirable, or undesirable, course of action.

Analysis of Forces

Economy of Israel

The economy of Israel has been met with numerous advancements throughout the past years. Generating few benefits through its exports of oil and its few reserves (out of 266 states, Israel is only the 68th largest exporter of oil), the country was forced to adjust to new conditions. In this order of ideas, it created an economy based on market principles, in which the power and intervention of the federal institution is kept to a minimum. Technologic advancements have been introduced and also supported the economic growth of the state. All these efforts were driven by the country's limitations, imposed by its reduced reserves of oil, tough natural conditions and scarce natural resources. The agricultural field has also improved throughout the past two decades to now be able to almost entirely offer food stability and sustainability for the Israeli population. Notwithstanding these major pluses, fact remains that Israel continues to reveal high trade deficits as well as high levels of federal debt -- 78% of the country's gross domestic product represents debt.

The following lines reveal some factual information on Israel's economy:

National Product -- GDP of $201.4 billion -- the worlds' 52nd and growing at an annual rate of 4.2%; income per capita is of $23,300 -- the world's 49th; GDP composition -- 65% services, 32.4% industry and 2.6% agriculture

Labor force -- total of 2,957 million; by composition -- 82% in services, 16% in industry, 2% in agriculture; the unemployment rate is of 6.1%, 1.2% lower than the 2007 unemployment figures (Central Intelligence Agency, 2009)

Political and legal environment of Israel

In terms of the government type, this is a parliamentary democracy, but the country has yet to form a clear constitution. The internal legislation is based on the Declaration of Establishment of 1948, the Basic Laws of the parliament and the Israeli citizenship law. As of 2003 however, efforts have been intensified towards the formation of a solid and unified national constitution. The president and the government represent the executive power and the legislative role is assumed by the parliament, the unicameral Knesset. The judicial power falls on the hands of the Supreme Court (Central Intelligence Agency).

The political structures and the adherent laws are directly influenced by those in Western, Eastern and Central Europe and are pegged to the historic relationship between these regions and Israel. In terms of the values which sit at the basis of the Israeli politics and legislation, these refer to an emphasis on the well-being of citizens, an elected government or political competition between several political parties. The freedom of the press is highly increased, meaning that the population gets easy access to unbiased information. The levels of voter participation in elections are increased, revealing as such a great interest in the politics and general future of the country, as well as citizen responsibility (Country Studies U.S., 2009).

The large majority of the trade is conducted through preferential agreements

Aside from the tariffs, goods are also subjected to a 1.02% wharfage fee, a 16.5% value added tax, a 5 to 20% purchase tax for luxury goods, as well as various other excise taxes; interestingly enough, these fares are imposed to all products, regardless of their national or foreign provenience

Israel strives to increase its exports, meaning that they do not imposes taxes on the exported merchandise; exports to Iran, Lebanon and Syria are prohibited

Governmental support has moved away from regional development and is more focused on the development of small and medium size enterprises and the fuel of a stronger economy

Competition is generally friendly and fair, as it is regulated by the anti-trust authority; nevertheless, emphasis is placed on convincing manufacturers to purchase their commodities from local suppliers (World Trade Organization, 2006)

The socio-cultural environment

Despite the trend of growing income per capita and decreasing unemployment rates, 21.6% of the Israeli population lives below the poverty line. The total head count is of 7,233,701 individuals, with a population growth rate of 1.67%. The total life expectancy at birth is of 80.73, with 78.62 years for men and 82.95 for women. Judaism is the main religion, attracting 76.4% of the population; it is followed by Muslims, Arab Christians, other Christians and Druze. The official language is Hebrew, with English being the most commonly spoken foreign language. In terms of literacy, 97.1% of the population can read and write. The school life expectancy is of 15 years (Central Intelligence Agency).

In terms of culture, this is extremely different from that displayed within the United States. Some cultural features which must be considered before launching business operations in Israel refer to the following:

The Israelis generally lack diplomacy, but are more direct; they are however honest

Unlike the western cultures, based on rules and objectives, the Israeli culture is based on interactions and reactions, meaning that feelings and instincts come before reasoning and rationalizing

Israelis do not shake hands and like to be addressed by their first name

Despite their hospitality, they are private individuals who do not share events from their personal lives; they will however inquire of the foreigners' personal status, such as salary or marital status

They do not exchange business cards

They are highly verbal, often using loud voices to communicate; this a healthy means of blowing off steams which results in lack of medical drugs (such as highly popular in America Valium or Prozac) and reduced violent interactions

They generally make half the salary of their American homologues

Launch and other breaks are generally frowned upon and perceived as a waste of valuable time; sandwiches are encouraged, but dinner is welcome, respected and enjoyed

They are strong negotiators and, due to the long lasting and traumatizing wars, they want commitments and things done immediately, otherwise they perceive their counterparty as not really interested in a prospective collaboration (Israel Public Relations).

3. Pros and Cons

Arguments in Favor

Israel remains a leading figure within the Middle East, meaning that conducting business here opens doors to nearby markets, such as Lebanon, Syria, Jordan and Egypt, as its direct neighbors, but also other states, such as Sudan, Turkey, Iran, Iraq and many more

The United States provides the largest aid to Israel (half of the country's debt is owned by the U.S.), meaning that an American investor could be faced with more opportunities than another foreign investor

Market oriented economy, with a limited government interference

Technologically developed

Skilled and cheap labor force

Citizenship responsibility

The country's modern developed infrastructure represents yet another plus; in order to attract more investors, the state officials are investing large sums of money into infrastructure projects, such as "the construction of a new terminal at Ben Gurion International Airport; a tunnel through Mt. Carmel to provide a bypass route around Haifa; the Cross-Israel Highway, a major north-south artery; and mass transit systems planned for Jerusalem, Beer Sheva, and the Tel Aviv region" (Encyclopedia of the Nations, 2008)

Arguments Against

Rough natural conditions and scarcity of natural resources

No formal constitution, leading as such to ambiguity in the application of the three source provenience laws; additionally, this political structure limits the powers of the government and makes it difficult for the civilian and business members to safeguard their rights and well-being

The levels of taxes imposed on both organizations and individuals is very high, meaning that the company would register increased expenditure with both state contributions and well as employee wages

Despite the lower levels of salary, the cost of living in Israel is fairly increased; in fact, it is comparable to the cost of living in New York (Israel Public Relations)

A major disadvantage is given by the regional conflicts, which severely impact the country's political stability. Israel has a long standing history of conflicts of a religious nature with the Palestinians, but also with Lebanon and other Middle Eastern states; despite the numerous attempts at peace, armed conflicts still occur; this brings instability and fear not only in the political and civilian life, but also to business operations

4. Conclusion

Similar to any other global region, Israel is characterized by both opportunities, as well as threats. The decision of whether or not to expand one's business operations into this land is a complex one and depends on a series of forces. For this situation however, the advice is that of launching operations within Israel. The rationale behind this recommendation is a dual one and refers primarily to the multitude of benefits revealed by the western Asian country. The second reason is pegged to the historically proved ability of Israel to succeed in adverse circumstances.

References:

Israel, County Studies U.S., 2009, http://countrystudies.us/israel/77.htm last accessed on October 15, 2009

Israel Culture, Israel Public Relations, http://www.israelpr.com/doingbusiness.html last accessed on October 15, 2009

Israel -- Infrastructure, Power and Communications, Encyclopedia of the Nations, 2008, http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Israel-INFRASTRUCTURE-POWER-and-COMMUNICATIONS.html last accessed on October 15, 2009

The World Factbook -- Israel, Central Intelligence Agency, 2009, https://www.cia.gov/library/publications/the-world-factbook/geos/is.html last accessed on October 15, 2009

Trade Review Policy: Israel, Shift to High-Tech Contributed to Increases in Exports and Economic Growth World Trade Organization, http://www.wto.org/english/tratop_e/tpr_e/tp258_e.htm last accessed on October 15, 2009