7 October 2023 will go down in the history of the Jewish people as the second Holocaust. After the brutal massacre by the Hamas terrorists, the war began, and it is now in its sixth month. The shock and despair in Israel continued for a few weeks. Business came to a standstill as thousands of people enlisted in the military, while those who stayed at home set up support centres for soldiers and their families across the country, also helping internal refugees. 200 000 people were evacuated from their homes in both the north and the south of the country.
Under these conditions, the Israeli economy was in danger of collapse, with the cost of the war estimated at 250 thousand dollars every day. But Startup Nation has a long-established ability to fall, rise and keep growing despite all odds: entrepreneurs worked 16 hours a day to replace colleagues who went off to serve, companies adjusted their business plans, and investors set up several equity funds to help rebuild the wounded country’s economy.
Resisting the constant threat is one of the reasons why Israel is known as a nation of inventors and start-ups. Those Latvian companies considering this market must be prepared to think innovatively, as well as offer world-class technology and quality.
Despite the current situation, life in Israel continues to go on in the shadow of war. And so does the economy.
“Economic cooperation between Latvia and Israel has huge untapped potential and we have every opportunity to develop mutually beneficial projects. Israel is a small country (the size of Vidzeme!), but it is one of the world leaders in innovation and patents. It just seems that everyone here is an inventor – a housewife has a patent for a dishwashing sponge, while an insect researcher has developed a robot that can smell a person in earthquake rubble,” says Irina Rubinčika, Head of the Innovation and Technology Representative Office of the Investment and Development Agency of Latvia (LIAA) in Israel.
Daumants Pfafrods, CEO of optical fibre manufacturer Light Guide Optics International, points out that high-tech companies account for almost 40% of Israel’s gross domestic product. It is therefore valuable for innovative companies to find a partner in Israel. Jānis Ošlejs, owner of the concrete technology company Primekss, also believes that a company should not look to Israel if it does not innovate or produce quality products.
“The low-tech era is over. For example, every animal in Israel has its DNA analysed immediately after birth to know its exact health status and to plan the economic viability of the herd for future meat or milk sales.
Data analysis is a strength of Latvia’s strong information and communication technology sector, so this is where we can offer innovative solutions that can be exported globally.
We have a good base for both technology exports and investment in our bright start-ups,” says I. Rubinčika.
With great potential
In 2023, Latvia’s total trade turnover in goods and services with Israel amounted to 107.4 million euros, ranking Israel 45th among Latvia’s foreign trade partners. The total export of goods and services to Israel was 70.1 billion euros, comprising 0.3% of Latvia’s total exports, however the import of goods and services – 37.2 million euros, which comprises 0.1% of Latvia’s imports. In comparison to 2022, exports have decreased by 23%, whereas imports increased by 30%. In 2023, Israel was Latvia’s 41st most important export and 43rd most important import partner.
“Israel is still not among Latvia’s most important export markets. However, if a company manages to overcome all market entry barriers and penetrate Israel, it is assured of a significant and stable profit,” says I. Rubinčika.
She adds that if a company’s product is represented in Israel, this market can serve as a gateway to the wider world. “Israel is traditionally very closely linked to America. If a company is working in Israel, it might be easier to enter the American market. Israel is also a gateway to Asia and India,” says I. Rubinčika.
A geographically and politically complex market
“Israel is one of the most complicated places in the world, both geographically and politically. Israel is cut off from the rest of the world, surrounded by countries with which it has no diplomatic relations, is in a state of war, or has no peace agreement,” says I. Rubinčika. D. Pfafrods also points out that the security measures taken when entering and leaving the country are different from those in other parts of the world. For this reason, logistics to Israel are quite complicated, with goods arriving by sea container or aeroplane.
But despite this, the country’s economy is growing rapidly. “The Israeli market is fast growing. The country has a very strong economy, so I recommend that everyone go there,” says J. Ošlejs. “In various rankings, Israel’s economy ranks between fourth and eighth among the strongest economies, alongside Canada and the US. It is therefore logical that this market is also of interest to Latvian companies,” says I. Rubinčika.
Import reform facilitates exports
Asked about the challenges in the Israeli market, D. Pfafrods said that customs clearance and declaration issues need to be sorted out. As the company sells a medical product with various international certificates, there have been no major problems.
In 2023, Israel came on board with an import reform and the country decided to fully recognise the European Union’s production and control standards, I. Rubinčika said. This means that many products will no longer have to be separately registered with the Israeli inspection authorities and will no longer have to obtain a GMP certificate. The exceptions are dairy and meat products. For all other products, self-declaration in the online system is sufficient, with the importer certifying that it is importing products produced in compliance with European Union standards.
“Unfortunately, for cosmetic products, these simplified rules have been delayed,” says I. Rubinčika.
Valuing quality food
Rubinčika sees good opportunities for Latvian food products in Israel. “For example, there is a great shortage of berries, including dried and quick-frozen ones. 50 grams of Argentinian blueberries in Israel costs EUR 5. Strange as it may seem, there is also a shortage of quality ice cream. Lithuanian producers have already entered this niche, but there is still potential,” she says.
Although Israel supports local producers in all areas, Latvian products have been well represented in Israel for several years, such as Latvian sprats, Laima sweets, Latvijas balzams, Cēsu alus, and cheeses from Cesvaine.
Opportunities for the financial sector as well
Rubinčika has seen interest in Latvian furniture and lighting on several occasions. Textile producers also have business opportunities in this market. She sees great potential for optical fibre, electronics and defence companies.
“Israel is interested in manufacturing automation, the Internet of Things, climate technology, smart energy and waste recycling, as well as in the development of agricultural and food technologies,” says I. Rubinčika.
She also sees potential in the financial sector. “Latvia can offer Israeli start-ups financial technology licences to develop new financial products. The Latvijas Banka’s Innovation Hub and the facilitated licensing process offered have generated interest among Israeli FinTech companies.”
Exports of EUR 20 million
One of Latvia’s largest exporters to Israel is Light Guide Optics International, an optic fibre manufacturer in Līvāni, which has an annual turnover of more than EUR 20 million in this market. At the same time, the company’s partners work in a global market and the products that remain in Israel are said to be a small fraction. “Therefore, we are not so impressed by Israel’s economic development or political landscape. We are more influenced by global developments – supply chain problems, currency fluctuations,” says D. Pfafrods.
Until now, Light Guide Optics International exported laser products to Israel. Currently, the company’s fastest-growing business is the production of catheters for the treatment of arteries. The company plans to develop cooperation with Israel in this area as well. “It is a very, very fast-growing business at the moment, already accounting for more than 20% of our turnover, and will continue to grow over the next few years,” says D. Pfafrods.
The company has a long-standing relationship with Israel. In the early 2000s, D. Pfafrods worked for Anda Optec, which produced fibres for urology lasers. In 2004, the company underwent a major change: the Latvian members left the company and founded Z Light, which later became Light Guide Optics International. The company decided to re-establish relations with partners in Israel. “It was not so simple. It took quite a long time to build up the cooperation, proving that the business environment is different from the one in Latvia. We found a consultancy company that was willing to help us enter the Israeli market, and that’s how we re-established our cooperation and showed what we were capable of. After three years of cooperation, we resumed serious work in Israel in 2007,” says D. Pfafrods.
Light Guide Optics International was helped to grow in Israel by a local partner who receives a commission for successful transactions. “Given the Israelis’ bargaining skills, we were not doing so well in negotiations,” says D. Pfafrods.
Follow the customer
Ošlejs also believes that a company representative in Israel needs to be familiar with the local culture, the company and its product. “In Israel, there is a definite need for someone from Latvia who understands how Latvians think and can translate for Latvians what the Israeli side is thinking,” he says.
Primekss has been exporting to Israel for 12 years. The company came to this market somewhat unprepared. Primekss needed to build a warehouse in Netanya, Israel, for a long-term customer, IKEA. “We follow our customers. If we have a customer that is developing in a new market, like IKEA, then we just follow it,” says J. Ošlejs. As the company expanded into Israel, other companies became interested. Primekss now exports 8% of its turnover to this market.
Entering the market is neither cheap nor quick
When asked how best to prepare for exporting to Israel, I. Rubinčika warns that one should be prepared for significant costs. “One has to take into account the cost of customs and legal advice, relatively expensive sea and air logistics, as well as regular travel expenses to meet partners face-to-face. But it will pay off because Israel has good purchasing power. 10 million people here earn as much as 50 million in other countries. And the market is always hungry for new products,” she says.
Rubinčika advises entrepreneurs not to be afraid of potential obstacles, for example, if they do not receive replies to e-mails. She therefore recommends coming and meeting potential partners in person. “Yes, Israel is special, so I strongly recommend coming and getting to know it first. Also, to make business connections, I recommend first meeting in person. Online meetings, e-mails and calls can only help at the very beginning. After that, face-to-face contact is very important,” says I. Rubinčika.
Disputes are a natural part of business negotiations
“I really like the business culture in Israel and I enjoy working there,” says J. Ošlejs. He noticed the difference in business cultures the first time he went to Israel and negotiated a contract. When he met his partners in the construction van to finalise the last details, the conversation became very heated. The entrepreneur was convinced that there would be no deal, but the conversation ended positively.
“A dispute, even a very sharp one, is a natural part of business negotiations. Just because someone has a very strong argument doesn’t mean they don’t like what we are doing. It’s just the way they talk,” says J. Ošlejs.
Rubinčika also advises not to be shy about asserting your point of view: “In Israel, you can bargain peacefully and stand up for your business interests. If the other side does not do so, the Israelis will think that something is wrong. They count on the company to protect and defend its interests, so they even expect bargaining.”
Both J. Ošlejs and D. Pfafrods point out that it is difficult to build business relationships in Israel without personal connections and mutual trust. “Once relationships are established and business is thriving, personal contact is perhaps not so important. But we still visit each other quite often. Even during the pandemic, we had regular meetings,” says D. Pfafrods.
Rubinčika adds that in Israel, the week starts on Sunday, which is a working day. The working week ends on Thursday. “Partners should not be disturbed on Fridays,” she says. Pork is forbidden in the Jewish culture and religion, so the product cannot be imported into Israel and should not be offered to partners when they visit Latvia.
Creative, direct and fast
Rubinčika adds that in Israel people are natural and open; they do not follow artificial rules of etiquette. “Israelis are characteristically quick to respond – often you’ll get a reply on WhatsApp within an hour of the call, rather than an e-mail. They expect the same from business partners – they need to be able to respond quickly to offers of cooperation,” she says.
In Israel, people are creative and spontaneous, and they tend to think that Latvians are too narrow-minded. This is why J. Ošlejs recommends striking a balance between Israeli creativity and Latvian consistency. If one or the other is predominant, the balance is upset. “When we had some problems in this market, it was more to do with the lack of balance between Latvian consistency and Israeli creativity. In those moments, we made more of an effort to spend time with each other and come to a similar understanding of things,” he shares.
Their directness and concreteness are also something to be reckoned with. I. Rubinčika knows that Israeli partners want to know the exact details of the product and price offer, not a presentation of the company’s mission and vision.
Pfafrods adds that you have to be patient – nothing happens at once in the Israeli market. You have to gradually establish yourself as a solid partner. “It's not like I leave today and immediately sign a contract for several years. Everything happens very slowly, step by step. But once an agreement is in place, it is a partnership for a very long time,” he says.
Cooperation will be in innovation and technology
Since 2022, the Investment and Development Agency of Latvia (LIAA) also has a representative office in Israel. I. Rubinčika advises Latvian entrepreneurs on the Israeli market and helps with networking. Her second task is to take Israeli innovation experience and apply it in Latvia to help Latvian companies work more efficiently. “My goal is to develop innovation in Latvia by inspiring us with the Israeli example, and to attract investment in smart specialisation areas,” says I. Rubinčika.
In summer 2023, the Investment and Development Agency of Latvia (LIAA) and the Innovation Authority of Israel signed a cooperation agreement to foster bilateral projects in innovation and technology development. “It was clear from the beginning that, because of the political and historical situation, a cooperation agreement with Israel had to be concluded first to show that Latvia was among Israel’s friends. This cooperation agreement “legalises” our relations with Israel, which is a very important achievement. Now we can develop bilateral projects in research, innovation and science-intensive manufacturing,” said I. Rubinčika.
The principle of open innovation is a hot topic in Israel, with researchers and manufacturers willing to share their achievements. Of course, their intellectual property is protected and there is a licensing fee. I. Rubinčika compares Israel to an innovation supermarket where you can buy a ready-made solution to your challenges.
“I invite Latvian entrepreneurs to think about what is preventing them from working more efficiently. The EIT Hub Israel, the knowledge and innovation community of the European Institute of Innovation and Technology, has a special support programme that co-funds the search for such technologies in Israel. Israel is targeting the European market, investing in companies, setting up research centres and actively participating in scientific consortia funded by the European Union, so every new partner in Europe is worth their weight in gold to Israel,” she says.