Analysis: Will Amazon hurt or help Israel’s economy?

Questions are being raised over the impact that Amazon’s full entry into Israel will have on the local retail market.

By David Jablinowitz, World Israel News

Amazon announced last week that it intends to officially enter the Israeli market with a dedicated shopping website. The U.S. online retailing giant reportedly sent out invitations to a number of Israeli suppliers to register to reach customers in Israel through local delivery.

The announcement came after it had seemed that Amazon was about to give up the idea.

Currently, Amazon makes deliveries to Israel through the Israeli postal system, mainly from the U.S. and Europe. The system has been fraught with long delays and high shipping costs.

Now, questions are being raised over the impact that Amazon’s full entry into Israel will have on the local retail market. Observers acknowledge a benefit to consumers through the nearly direct contact with the manufacturer that is enabled by using Amazon.

But what about the Israeli economy? Will Amazon cause the demise of Israeli businesses?

The Israeli business news service Globes ran a headline that “Amazon jeopardizes Israel’s stores and malls.”

It notes that Israeli companies, which have been selling their products through chain store outlets, could now avail themselves of the Amazon platform, still using these chains but also competing against them through Amazon.

However, other experts counter that it’s too early to predict any dramatic impact. Sometimes it just doesn’t work, they say. It can be a matter of the tastes of the Israeli consumers or their shopping habits that do not suit this new style of doing business.

Sometimes, giant U.S. business entities stepping foot in Israel ultimately decide that it’s not worth their while to do it, perhaps because the market is so small.

In an opinion piece published in the Israeli daily Haaretz, journalist Sami Peretz notes that in 2001, Citigroup, then the biggest financial services provider in the world, planned to offer retail banking in Israel, setting its sights on “capturing 15% to 20% of the local market.”

However, Peretz writes, Citigroup ultimately “reached the conclusion that retail banking in Israel simply wasn’t interesting. The market was too small, the existing players too deeply rooted in the local economy, and it made no sense to engage in a price war with them.”

The economic policy of Prime Minister, and former Finance Minister, Benjamin Netanyahu has been to promote an open economy, encouraging the entry of new players into the market to stimulate competition and better business practices. At the same time, maintaining the financial well-being of Israelis also means looking out for the medium-sized and small businesses to ensure that they are not swallowed up.

It is a balancing act, and Amazon has just stepped foot on the Israeli tightrope.