Textiles and Apparel
Israel has succeeded in
creating a thriving textile and apparel industry,
overcoming the handicaps of a small domestic
customer base, distant export markets and
high costs. Much of the credit goes to the
industry itself, which has adopted high tech
manufacturing methods to produce quality and
cost-competitive goods, made strategic acquisitions
in overseas companies and focused on niche
markets where medium-sized and small companies
can be major players. Part of the credit also
goes to the Middle East peace process, which
has enabled companies to move production to
lower-cost countries in the region, and to
the free-trade agreements which Israel has
with two of the biggest apparel markets in
the world, the United States and the European
Union.
A Stitch in Time
Israel's textile and apparel industry started well before
the founding of the State in 1948. In the 1920s, Jewish pioneers
from Europe set up factories in the Land, replicating the
businesses they had run in the countries of emigration and
adapting them to local conditions. The story of Lea and Armin
Gottlieb, founders of the world-famous swimsuit manufacturers
Gottex Models Ltd. illustrates this flexibility.
In its early years, the textile and apparel
industry received substantial support and
encouragement from the State. Grants and loans
were provided to build and expand factories,
which were then protected from competition
by custom duties and quotas on imports. But
over the last two decades, the State has shed
its old philosophy of direct intervention
in business and the economy, a process that
was motivated by the growing realization of
the benefits of free trade. Israel became
a signatory to GATT (General Agreement on
Tariffs and Trade) and later the World Trade
Organization (WTO), which required it to conform
to certain standards of open markets.
In 1975, the government signed a free trade
area (FTA) agreement with Europe, and a decade
later one with the U.S. followed. At the beginning
of the 1990s, an import liberalization policy
was unilaterally initiated that cancelled
quotas and, over time, high duties on imports.
Import duties on textile and apparel have
also been cut to 12%. Companies now competing
with low-cost Far Eastern products in both
their domestic and export markets have responded
in various ways: by shifting labor-intensive
manufacturing to low-labor-cost countries;
by finding and developing niche markets where
they can have a relative advantage; and by
employing the latest automated methods for
design and manufacture.
Free Trade
Because of the small Israeli market, the
most successful apparel companies are export-oriented.
Israel is the only country in the world that
has FTAs with both the U.S. and the EU, making
it a bridge between the continents. By virtue
of the North American Free Trade Area agreement
(NAFTA), Israel also enjoys duty-free access
to Canada and Mexico. This agreement, together
with the Israel-Mexico FTA (which became effective
in the summer of 2000), allows Israel duty-free
access to practically all of North America.
Israel also has FTAs with Jordan, Egypt, Turkey
and the Palestinian Authority.
The FTA with the U.S. is particularly important
and has had profound effects on Israel's textile
and apparel industry. America is now the industry's
biggest export market even though Europe's
proximity had traditionally made it a natural
outlet for Israeli products. Israel exported
some $545 million of textiles and apparels
to the U.S. in 1999, nearly tripling the level
of 1990, while exports to the EU declined
from $580 million in 1996 to $485 million
in 1999. The FTA's role is so critical that
it can open up entire markets; for example,
since the U.S. increased its duties on imported
bed linen from European and other countries,
demand has grown for Israeli home textiles,
which enter the U.S. duty free.
Peace Work
Israeli textile companies were among the first businesses
to enjoy the dividends from the peace agreements signed between Israel and Egypt in 1979, and - more significantly for the industry - between Israel and Jordan in 1994. Proximity enables Israeli managers to make frequent
trips to manufacturing plants in Jordan,
where the cost of labor and most other inputs is lower than
in Israel.
One of the major benefits of the FTA agreement with the U.S. is that it grants Israel preferential
"rules of origin" benefits that allows a garment
to be cut in Israel and assembled in a low-cost country and
still enter the U.S. duty-free. In 1998, Israel and Jordan
established the first Qualified Industrial Zone (QIZ) in
Irbid, Jordan, to facilitate joint production of duty-free
export goods to the U.S.
Today there are a number of manufacturing
plants set up by Israeli textile companies
in Jordan and Egypt, as well as joint ventures
between Israeli and Turkish manufacturers.
Delta Galil Industries (founded in 1975) is
gradually shifting much of its labor-intensive
manufacturing from factories in England and
Scotland to low-cost countries like Jordan,
Egypt, Turkey and Romania. Low-cost production
rose to 35.9% of total sales in 1999, compared
with 24.6% in 1998. At Tefron, a manufacturer
of intimate and leisure apparel, some 10%
percent of the company's production is now
in Jordan, with management aiming to increase
this figure to 50 percent.
Labor-intensive manufacturing is expected
to continue moving to low-labor cost countries
further afield, with Mexico joining the list.
Haute Tech Fashion
Israeli companies have invested heavily in
the best machinery which technology can provide,
have set up active research and development
(R&D) units to be at the cutting edge
of innovation, and have transformed themselves
from a purely manufacturing-oriented sector
into a more diverse, broad-based industry,
offering customers complete packages including
development of materials, design and full
collections.
Tefron's use of computerized robotic manufacturing
methods, for example, has resulted in international
recognition as a leader in the implementation
of new manufacturing technologies. The company
designs, develops, manufactures and markets
high-quality men's and women's lingerie and
undergarments for export, mainly to the U.S.
Complete apparel production - from thread
to completed garment - is a one-step operation
replacing traditional finishing and cutting
methods, as well as conventional sewing processes.
With its high tech edge, Tefron is a world
market leader in the production of seamless
items, and counts as its customers Victoria's
Secret, Donna Karan, Gap and Banana Republic
as well as European clients such as Cacharel
and Dim.
In fabrics, too, Israel has made use of the
best technology available. Nilit, which makes
nylon yarns for use in women's hosiery, intimate
apparel and bodywear, competes successfully
in the major markets in Italy and the U.S.
because it is a fully integrated manufacturer,
producing both the yarn and the polymer. The
company invests heavily in new technology,
buying the machinery but designing its own
production lines.
Niche Markets and Fashion
Specializing in niche markets and fashion
has also given Israeli apparel companies a
competitive advantage over the flow of Far
Eastern imports. Israel, for instance, has
succeeded in making a mark in the area of
home textiles, and its companies are recognized
for their use of luxury fabrics, a wide array
of printed percales, muslins and cotton fabrics.
Kitan Consolidated has developed naturally
colored and organic textiles for bed linens,
towels, bath-rugs and curtains. Other major
players in this field include Wardinon and
Arad Towels.
On the fashion side, Israel has made a splash
with top-of-the-line swimsuits like those
produced by Gottex. The Israel Export Institute,
a government-sponsored body that promotes
Israeli industry abroad, is also grooming
a whole new corps of young fashion designers,
including Dorin Frankfurt, Gershon Bram and
Hagara Fashion.
Private Label
Few Israeli companies have established independent
brand names, but they are frequently the manufacturers
behind the prestige label. Research by the
Israel Export Institute shows that in the
clothing sector, more than 90% of exports
are sold using the "private label method",
meaning that their products are sold under
a different company's brand name.
Delta Galil, which makes high-quality ladies'
intimate apparel, men's underwear, socks,
baby clothes, leisurewear and fabrics, sells
its products to leading brands such as Polo,
Ralph Lauren, Donna Karan, Calvin Klein, Victoria's
Secret and Hugo Boss, as well as to retailers
JC Penney, The Gap and Banana Republic in
the U.S., Marks & Spencer in the UK, Hema
in The Netherlands and Carrefour in France.
Polgat Textiles, which creates worsted wool
fabrics from the thread to the finished material,
counts as its customers high-fashion designers
Armani U.S., Calvin Klein and Liz Claiborne,
and retailers Marks & Spencer. Bagir markets
its private label products to Marks &
Spencer and Brooks Bros, and its own label,
Pierre Balmain, Paris, to Selfridges and John
Lewis in the UK.
Many Israeli subcontractors to bigger companies
like Delta Galil and Tefron are already eager
to become private-label exporters in their
own right.
Going Global
With textile and apparel production now a
global industry, many Israeli manufacturers
have expanded operations by acquiring companies
outside the Middle East. This year, Delta
Galil acquired the Canadian sock marketer
and manufacturer Dominion Hosiery Mills, and
Wundies Industries (U.S.), a manufacturer
of intimate apparel and girls' underwear.
Tefron has also become an international company,
having acquired in 1999 Alba Waldensian Inc,
a leading American manufacturer of seamless
clothing and unique knitted medical products.
Making Waves
Gottex is the swimsuit brand that has put Israel
on the map of high fashion. The genius of Lea
Gottlieb, who founded the company with her husband
and became its chief designer, was to complement
swimsuits with matching tops, pareos and skirts,
creating fashionable beach outfits. Gottex is
also as much a story of how important good management
is to an apparel company as high fashion.
Lea and Armin Gottlieb arrived in Israel
in 1949, and set up a raincoat factory similar
to the one they owned in Hungary. However,
because Israel is hot and dry for most of
the year, they shifted production to swimwear
in 1954.
Before long, Gottex became available worldwide,
with bathing suits and accessories - characterized
by bold cuts, colors and innovative textiles
- sold in more than 80 countries. Gottex also
blazed a trail for other Israeli swimwear
companies some of which, like Gideon Oberson,
sell under their own name but most, like Marlin,
Klil Yofi Model and Diva Hirschthal, under
other brand names. Exports of swimwear from
Israel totaled $44 million in 1999.
At the end of 1997, after a series of poor
production, planning and purchasing decisions,
the Gottliebs sold 80% of their firm to a
holding company, Africa Israel Investments;
but 82-year-old Lea Gottlieb is still a member
of the design team.
Since then, Africa Israel has reorganized
the company. The strategy has paid off: in
1999, Gottex recorded a $2 million profit,
turning around a $17 million loss from previous
years. Sales exceeded $30 million in 2000
(resulting in a $3 million profit), 85% for
export, mainly to major retail stores in the
U.S. like Sacks Fifth Avenue and Bloomingdales.
In the UK, Gottex is sold by prestigious retailers
such as Harrods, where Gottex has its own
shop. Other world markets include France,
China, Japan, Australia and South America.
Recently, Gottex has launched two less pricey
lines, "Free by Gottex" aimed at
young working women, and the "Lady Gottex"
brand for older clientele.
Significantly, Gottex spends about $3.5 million a year (about
10% of its turnover) on research and development, trying
out new technology, prints and materials, and creating finished
products that include three dimensionality and glittery foil
for additional effect. Forty percent of cutting at Gottex
is computerized (the rest of the garments are cut by hand).
Currently, all production is done in Israel, but the company
is studying the setting up of production facilities in the
Karni Industrial Zone (an industrial area under the Palestinian
Authority) or in Jordan.
Sources: Israeli Ministry of Foreign Affairs |