The Spatial Pattern of Arab IndustrialMarkets in Israel
Izhak Schnell, Itzhak Benenson, and Michael Sofer
Geography Department, Tel Aviv University
This paper examines the structure of industrial linkages of Israeli-Arab entrepreneurs, members ofan ethnic community at the periphery of contemporary Israel. This case study delineates some ofthe challenges that ethnic peripheral minorities have to face in their attempts to integrate into latecapitalist economies. It begins with the simultaneous construction of the pattern of sales linkages onmicro- and macrolevels. In the first stage, based on a GIS application, we decompose the overall patternof industrial linkages into a number of significant subpatterns, each corresponding to a specific market.In the second stage, we explore the planar representation of a graph of the plants’ participation in eachof the hypothesized markets. Investigation of this graph discloses the routes of expansion into orwithdrawal from the different markets. This methodology provides a basis for studying the relative impactof peripherality and ethnicity on market formation and, thus, on economic development. Our investi-gation reveals the pattern of operation of a sector that is still highly disadvantaged and distanced fromopportunitiesandresources.Despite these circumstances, Arab industry in Israel has been undergoinga restructuring process since the 1970s. In the course of restructuring, Israeli-Arab entrepreneurshave abandoned their traditional mimicking strategy and begun to show considerable willingnessto take greater risks in exploiting any narrow window of opportunity. In their search for markets,Arab entrepreneurs have channeled sales to a wide range of more distant markets, crossing ethnicand regional boundaries. Moreover, even smaller enterprises have shown notable flexibility in choosingmarkets, and have displayed a remarkable ability to overcome barriers. Arab entrepreneurs, however,have had only limited success in overcoming the barrier of monopolistic strategies exercised by Jewishcorporations; moreover, their status as ethnic minority has not helped them in their effort to mobilizegovernment support on their behalf. Key Words: sales linkages, network decomposition, ethnic markets,plants, participation in markets, ethnicity, peripherality, Arab industry.
Ethnic entrepreneurship is a frequent focusof discussion in studies of ethnic economicdevelopment and interethnic economic in-
tegration (Aldrich and Waldinger 1990; Barrettet al. 1996). The intensity and dynamics of inter-firm linkages and networks are recognized indica-tors of industrial growth, as intensive linkagesmay generate economic multipliers along withother economic benefits to the local and theregional economy (Scott 1991; Felsenstein 1992).A key issue in these investigations is the degreeto which firms are embedded in various marketsthrough their relationships with competitors, sup-pliers, regional and national business organiza-tions, and public decision-making forums (Best1990; Harr i son 1992; Markusen 1994;Lakshmanan and Okumura 1995).
In the context of interethnic relations, we askto what extent do ethnic entrepreneurs succeedin developing economic networks with society at
large, or, alternatively, to what extent are theylimited to intraethnic enclaves? The investiga-tion of economic networks may be relevant forthe understanding of entrepreneurial dynamics,as well as for the study of social integration forvarious reasons. Entrepreneurship is a majorroute for economic mobility among ethnic mi-norities. Its success, therefore, may represent akey step toward closing economic gaps with moreprivileged groups. Economic encounters withother ethnic groups may open new interethnicsocial networks for their members, and exposethem to other worldviews. Interethnic interac-tions among members of various groups may alsobreak uneven relations in those labor marketswhere members of marginal groups are generallyemployed by members of more privileged groups.
Entrepreneurs from ethnic minorities may beaffected by two major tendencies, which generallyinfluence the sociospatial structure of economic
relations: spatial inequalities between core andperipheral regions under capitalist regimes, andmarginalization of ethnic minorities into segre-gated enclaves. Our study focuses on ethnic en-trepreneurs’ expansion into various emergingsubmarkets in the sociospatial context of ethnic-ity and peripherality. In this study of the entre-preneurs’ behavior, we investigate whether suchminorities break barriers of economic develop-ment and sociospatial boundaries towards eco-nomic take-off and sociospatial integration intosociety at large. This paper examines the form anddegree of Israeli-Arab industrial expansion intonew markets, with emphasis placed upon theforms of breaking through sociospatial bounda-ries. The Israeli-Arab case is an example of theimpact of ethnicity and peripherality on marginalgroups’ economic development and integrationinto the economies of pluralistic societies. Thekeyquestion in this context is whether Arab industry inIsrael has managed to develop new markets beyondthe intrasettlement linkages that characterized ituntil the late 1970s (Shmueli et al. 1985; Meyer-Brodnitz and Czamanski 1986). If so, to what extenthave these enterprises managed to break throughethnic and peripheral boundaries?
To answer these questions, we investigate Arabindustrial linkages in Israel as a case study forArab businesses in general. Historically, Araburbanization and industrialization in Israel haslagged behind the rest of the country, with pro-duction based on cottage industries that supple-mented the rural economy. The current form ofindustrialization has been evolving since the1970s, after Israel’s economy had already shiftedto a corporate capitalist system dominated bylarge Jewish corporations with monopolic or oli-gopolic power over national markets (Schnell etal. 1995). We could have focused the study onboth industrial purchasing and sales linkages,whose intensity and complexity indicate the de-gree of integration into the national economy.Purchasing linkages seem to show a simple pat-tern clearly dominated by links with the Jewishmetropolitan cores, with the remainder pur-chased mainly from local Arab agriculture. Bycomparison, sales linkages are more complex,being characterized by higher degrees of sociospa-tial integration into the national economy. Wefocus on industrial sales because industry was aleading branch in the transformation of IsraeliArab settlements from a peasant to urban econ-omy (Meyer-Brodnitz and Czamanski 1986).
The first section deals with the developmentof Arab industry in Israel and the structural set-ting of its development. The second suggests atheoretical model of market expansion ruled byindustrialization, and is followed by a discussionof the research methods employed in the study.The fourth section analyzes actual industrial salespatterns in the Arab economy at the aggregatelevel; the fifth analyzes individual plants’ forms ofparticipation in the linkage patterns discoveredat the aggregate level. We conclude with a discus-sion of the relative impact of the two sets ofstructural barriers, ethnicity and peripherality, onmarket expansion.
Arab Industrialization in Israel
The Arab population of the State of Israel (notincluding the Palestinian Arabs living in the GazaStrip and the West Bank) amounted in 1997 toabout 1.2 million, or 19 percent of the totalnational population of some six million. The Arabpopulation is concentrated mainly in three re-gions in Israel: about two-thirds live in the moun-tainous region of the Galilee, twenty-two percentin the Little Triangle area at the fringe of thecentral coastal plain and bordering on the WestBank, and about ten percent in the Beer-Shebaarea in the south (see Figure 1 for locations). Therest reside in mixed towns and sparsely populatedareas. There are about 130 Arab settlements inIsrael, most with a population ranging up to30,000. One exception is Nazareth, which, withabout 60,000 inhabitants, has become the core ofan Arab metropolitan area of more than 150,000,as well as the central place for the Arab popula-tion in Israel. About half of the total Israeli Arabpopulation lives in urbanizing towns, the majorityof which were transformed from rural settlementsin the 1960s and now range from 5,000 to 30,000inhabitants. Population growth dropped from ap-proximately 4 percent annually in the 1950s toapproximately 3 percent in the 1990s. Through-out this period, migration rates for most of theArab settlements remained low.
In terms of integration into labor markets,Israeli Arabs made two major shifts, one duringthe 1960s and one during the 1970s (Table 1).Between the late 1950s and 1960s, agriculturalemployment decreased from about two thirds ofthe workforce to eighteen percent. Those wholeft agriculture joined “secondary labor markets,”primarily construction and services, but also, to
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Figure 1. Arab settlements in the Galilee, the Little Triangle, and other regions by population size.
314 Schnell et al.
some extent, commerce within the Arab settle-ments, and transportation. The second shift tookplace in the 1970s, when many Arab workers wererecruited to organized labor markets, mainly asblue-collar workers in industry and, to some ex-tent, as white-collar workers in public services.Two thirds of the workforce regularly commutedto the metropolitan centers in the national core.Since the 1970s, significant numbers of IsraeliArabs were mobilized into white-collar profes-sions, while some managed to open independententerprises. Industry made very slow progress un-til the 1970s, when the number of plants beganto grow rapidly.
The Economic Context
Arab industrialization must be understoodwithin its historical context, starting from Israel’swar for independence in 1948. The Arab urbansector had been decimated in the war, and thesmall remaining community was largely rural,restricted to its villages by martial law. The exist-ing production facilities were small, characterizedby low levels of capitalization and intensive laborutilization, drawn primarily from the extendedfamily. Most plants were involved in coal and limeproduction, stone quarrying, olive oil pressing,flour milling, and pottery making.
Soon after independence, the Israeli economyshifted to a state-managed capitalist system inwhich national capital was channeled to absorbJewish refugees from the Holocaust and Arabcountries and to securing housing and full em-ployment in new Jewish towns. The Arab econ-omy was almost completely excluded fromnational development plans. Only during the late1950s did the government remove some of the
martial-law restrictions that channeled morethan half of the Arab workforce into commutingto “secondary labor market” jobs in the nationalcore, in branches such as construction, agricul-ture, low-paying industries, and personal services.The number of Arab workers employed in indus-try grew to 5,700 in 1955 and 10,900 in 1963.Some 3,500 of these workers were employed byabout 1,000 Arab-owned workshops, about 2,000of them as salaried employees (Zarhi andAchiezra 1966).
Government policies began to incorporate theArab sector into the national economy in re-sponse to the acute poverty manifested by inci-dences of malnutrition in the villages that wereblocked by martial law. National policies wereoriented first toward the transformation of Arabpeasants into proletarian workers and consumersof the growing Israeli production and, since thelate 1960s, toward integration into the nationaleconomy as a marginal ethnic sector. These trans-formations in the forms of Arab economic inte-gration into the general economy, along with theensuing development of Arab industry, weremarked by three phases of restructuring of theIsraeli economy, but the impact of these phaseson Arab industry was felt only after a certaindelay.
During the initial phase (1955–1967), oppor-tunities for industrial entrepreneurship in theArab sector remained severely limited for severalreasons: a lack of capital and professional skills; alack of experience in a market economy; and,most particularly, the absence of a rudimentaryphysical infrastructure in Arab communities(Haidar 1993). Risk-minimization strategies in-duced Arab entrepreneurs to imitate proven suc-cessful enterprises and to refrain from investingin areas where other Arab entrepreneurs hadfailed (Czamanski and Taylor 1986). As a conse-quence, only three branches—food, woodwork-ing, and construction materials—showedsignificant growth (Khamaisi 1984). Enterprisesin these branches relied on newly emerging localmarkets stimulated by high fertility rates and so-ciocultural norms that encouraged young couplesto construct their homes before marriage. Giventhe lack of productive investment opportunities,the capital accumulated by Arab manual workerswas largely spent on housing. This gave rise to theestablishment of plants geared to the local hous-ing market (Schnell 1994).
After the Six-Day War in 1967, the nationaleconomy restructured once more, this time into
Table 1. Employment Distribution of IsraeliArabs by Year and Economic Branch (%)
a corporate-dominated system (Hasson 1981).During this stage, large corporations, headquar-tered in the Jewish core, developed productionplants in the Jewish periphery, thereby creatingjobs for Arab workers in neighboring Jewishtowns. By the late 1970s, almost a decade afterthe transition of the Israeli economy into a cor-porate one, the conditions for the second phaseof Arab economic restructuring emerged. Gov-ernment policies emphasized the linkage of Arabsettlements into national infrastructure net-works, as well as the establishment of municipalauthorities and educational systems in the Arabsettlements. At the end of this phase, most Arabsettlements had acquired a basic infrastructure,thousands of Arab workers employed in Jewish-owned firms had gained industrial and profes-sional experience, and Arab educational levelshad risen. In addition, women began to join thelabor force and sought employment in firms eitherin their own or in neighboring towns. On theother hand, discriminatory government policiescontinued to deprive Arab industry of neededresources and opportunities. Spread effects cre-ated during this phase were channeled solely tothe Jewish periphery, leaving the Arab peripheryalmost totally dependent on either growth frombelow or subcontracting for Jewish corporations.
The most significant change during this periodwas the introduction of textile and clothingplants, managed by Arab subcontractors, employ-ing the large reserves of Arab women who hadlow geographic mobility. As clothing plants andsewing shops rapidly became the major industrialemployers, local labor became largely dependenton these plants for employment. Other branchesof industry, such as construction and food, alsoexperienced rapid growth rates, establishing re-gional markets in the national periphery. Twofirms even succeeded in competing in nationalmarkets with Jewish corporations, eventuallyjoining the stock market.
If not based on local and regional markets inthe periphery, the Arab industries that developedat that stage operated as subcontractors to Jew-ish-owned textile and food producers, with onlya few succeeding to challenge the large corpora-tions. In 1983, Khamaisi (1984) counted 415plants in Arab settlements. Only one-third ofthem employed more than ten workers, and themajority were not Arab-owned but were subsidi-aries of Jewish-owned plants. More than 40 per-cent supplied construction material, woodworking,
and metals for construction projects in the Arabsettlements; one third were in textiles and cloth-ing; and the bulk of the remainder were in food.In that year, Arab industry (in plants employingat least three workers) employed about 3,000workers, 70 percent of whom were women.
Between 1983 and 1992, the number of Arab-owned firms employing at least three workersmore than doubled, reaching more than 900, withthe number of industrial workers employed inArab settlements rising to about 13,000 by 1992(Atrash 1993; Schnell et al. 1995). Nevertheless,Arab industry remained marginal to the nationaleconomy (Gradus et al. 1993). In 1992, Arab-owned enterprises employing five workers ormore represented nearly 5.5 percent of all suchfactories in Israel, and Arab workers employed inthose plants accounted for some 3.2 percent ofthe labor force in factories (Central Bureau ofStatistics 1995). The average size of Arab-ownedplants grew from about seven workers in 1983(Khamaisi 1984), to about fifteen in 1992(Schnell et al. 1995). Almost all were ownedjointly by family members, and only about onequarter were organized as formally registeredfirms (Table 2). Textile became the leadingbranch, having the largest number of plants andworkers as well as sales per plant. Construction-material plants intensified their production, in-troducing modern machinery, and branches likewoodworking and metal began to diversify theirproduct line. In addition, some new plants arosein more sophisticated branches.
Arab Industrial Space
By the end of the second restructuring phase,Arab industry had infiltrated into most settle-ments with more than 5,000 inhabitants. Indus-trial plants were found in some sixty Arabsettlements, the majority of which were locatedwithin the Galilee and the Little Triangle regions(Schnell 1994). At the level of the individualsettlement, five stand out as industrial centers,housing a relatively large number of factories. Thelarge number of plants in Nazareth (seventy-nine) and Umm el Fahm (fifty-two) stems fromthe status of these cities as the two largest Arabcenters in Israel. Baqa el Gharbiya, Tamra, andYirka succeeded in using their locational advan-tage in the fringe of the Jewish cores to expand
316 Schnell et al.
their markets to the surrounding Jewish vicinities(Figure 2).
The second phase of restructuring was alsocharacterized by expansion into new markets.This became possible when Arab entrepreneursbegan to adopt the mechanisms for financial plan-ning and marketing commonly employed in theJewish sector. In addition, the introduction of newtechnology, better quality-control mechanisms,and responses to the changing pattern of demandin the Jewish sector improved Arab competitive-ness (Sofer et al. 1995). Falah’s (1993) studysuggests that, as late as 1988, markets were stilldrawn mainly from local and neighboring Arabtowns. Unfortunately, his nonexclusive catego-ries do not enable clear identification of thedistribution of meaningful submarkets, althougha significant number of plants seem to havestarted to develop more complex markets on abroader regional basis.
Currently, a new phase of economic restruc-turing is taking place in Israel, characterized byflexible or global production (Hagey and Malecki1986; Storper and Scott 1989; Amin and Robins1990; Digiovanna 1996). So far, its impact on theArab economy in Israel is limited due to theclosure of about half the textile plants in Arabtowns during the last two years and their reloca-tion in Jordan, Egypt, and the Palestinian author-ity. As a consequence, unemployment hasdramatically risen in Arab textile-oriented settle-ments. At this stage, it is too early to foresee anynew directions in Israeli-Arab industry.
Sales Linkages of PeripheralEthnic Groups
In this paper, we investigate the sociospatialpatterns of sales linkages as they emerged duringthe 1990s (second phase of restructuring) into acorporate capitalist system. Like other minorities,Israeli-Arab entrepreneurs compete from an in-ferior position for their share in the marketingchains. Their marginalization is also reflected intheir location in the national sociospatial periph-ery. We argue that the theory of ethnic economiesmay best explain the formation of Israeli-Arabindustrial linkages. But since Israeli-Arab entre-preneurs are forced to operate as a peripheralminority, theories of market linkages under thecapitalist space economy may supplement thatexplanation by bringing new insights to the un-derstanding of their structures of opportunities.This section analyzes the impact of ethnicity andperipherality on the pattern of sales opportuni-ties. Based on this analysis, we then construct aconceptual model of Arab markets in Israel.
The Structure of Ethnic Markets
The theory most relevant to ethnic economiesappears to be that of ethnic entrepreneurship.The “ethnic enclave” version of this theory arguesthat ethnic economies call for the developmentof detached, self-supporting economies that generatea variety of inputs and outputs within themselves.
Table 2. Selected Characteristics of Arab Plants in 1992
Economic Percentage Percentage of Average Percentage Age of PlantsBranch of Plants Plants Organized Number of with Annual Sales
Figure 2. Number of Arab-owned plants in the studied Arab settlements.
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Profits and earnings are ploughed back into theethnic community, producing multiplier effects asfirms and earners buy from intraethnic suppliers(Waldinger 1993). Different studies have shownmixed evidence for the ethnic-enclave hypothe-sis. Some studies have concluded that enclaveeconomies do emerge and that they are beneficialto ethnic communities (Portes and Jensen 1989;Jensen and Portes 1992; Zhou and Logan 1989).Other studies have questioned the benefits oflimited and deprived enclave economies to ethniccommunities (Nee and Sanders 1987; Sandersand Nee 1992). Studies of ethnic entrepreneur-ship, however, rarely analyze the structural con-text in which ethnic industries develop (Barrettet al. 1996). Aldrich and Waldinger (1990) sug-gest a theoretical framework that incorporatesstructural aspects into a theory of ethnic econo-mies and entrepreneurship. They stress the im-pact of three major factors on the degree andtypes of ethnic entrepreneurship. First, there isthe “opportunity structure” as formed in a histori-cal context and by political decisions. Forms ofcapitalist accumulation are an example of such afactor, one that may structure selective opportu-nities on both sides of the ethnic divide. Second,access to enterprise ownership may channel eth-nic groups either to low-reward enterprises or toa segregated ethnic economy, depending uponthe degree of interethnic competition. Third, eth-nic-group characteristics may steer the group’sorientation toward entrepreneurship.
Two ethnic forces, cultural and social, seem toaffect ethnic entrepreneurs in their choice ofmarkets. From the cultural point of view, entre-preneurs on both sides of an ethnic divide tendto operate in different business cultures. There-fore, members of the marginal group are typicallydisadvantaged in interethnic markets becausethey are forced to adapt to the dominant businessculture. This may result in mounting difficulties,which must be overcome in order to establishbusiness connections among bodies on the twosides of the ethnic divide (Camagni 1991; Ratti1992). From the social point of view, members ofa minority group may be marginalized and evenexcluded from certain markets as a result of ra-cism (Miles 1989) and the tendency of dominantgroups to split and control lower-class workers(Webber et al. 1991). In response, ethnic minori-ties may enhance social solidarity—that is, a spiritof mutual trust, cooperation, and collective self-help—as a facilitator of ethnic-enterprise devel-opment (Light 1984; Light and Bonachich 1988).
Ethnic entrepreneurs may use this sense of soli-darity to enlist production factors, such as labor,capital, management, and markets, from more acces-sible internal sources (Aldrich and Waldinger 1990).
With respect to ethnic barriers, following Joneset al. (1992), we can identify four marketingcategories according to the size of the markets’hinterland (local and nonlocal) and to ethnicboundaries (intraethnic or Arab, and interethnicor Arab-Jewish):. Local intraethnic markets. According to “ethnic
enclave theory” (Semyonov and Lewin-Ep-stein 1993), local intraethnic markets may de-velop as a minority’s reaction to interethniccommunication rifts and to marginalizationprocesses. Such markets rely on intraethnicresources, often reducing the risks inherent inentrepreneurship. In line with this theory, localintraethnic markets may provide the solidfoundation necessary for ensuring the survivalof the business and, by doing so, make it possi-ble for entrepreneurs to take the calculatedrisks attendant upon penetration into newmarkets beyond the intraethnic system.
. Local interethnic markets. Such markets maydevelop as a strategy for expanding beyond thelimited ethnic markets in the entrepreneurs’vicinity (Ward 1985). This is achieved by con-centrating chiefly on low-order firms unattrac-tive to majority entrepreneurs. In this wayentrepreneurs can better compete due to theabsence of monopolistic competition. Thusthey are able to reduce their risks while fightingto overcome the resistance of the more de-manding, yet rewarding markets outside theethnic enclave (Jones et al. 1993). Entrepre-neurs from ethnic minorities may also try toreduce risks by operating as subcontractors forlarger corporations owned by members of themajority (Roberts 1978, 1996).
. Nonlocal intraethnic markets. Such markets maydevelop when ethnic barriers remain durablewhile economic opportunities grow within eth-nic markets elsewhere. In this case, an autono-mous ethnic economy may emerge, possiblyincluding high-order firms and wholesalerssupplying that economy. In addition, entrepre-neurs may use ethnic solidarity in order tocreate multiplier effects within the ethniceconomy, both for their own interests as wellas for their group’s workforce.
. Nonethnic nonlocal markets. These markets mayemerge when potential markets are unbounded(Jones et al. 1993). In this case, entrepreneurs
Arab Industrial Markets 319
may access any available market with no spa-tial or ethnic limitations, and thus achievehigher integration within the larger economy.Ethnic economies have been studied, in most
cases, in the context of immigrants who settledwithin the inner cities of large metropolitan cen-ters in more developed countries. In contrast,Arab industry in Israel has had to face the chal-lenges of entrepreneurship and market expansionfrom the national periphery. Furthermore, Arabsare required to make efforts to integrate into thenational economy from their position as an in-digenous underdeveloped minority. Previousstudies have shown that Arab white-collar work-ers and entrepreneurs gain status advantageswithin their Arab-sheltered economy. In con-trast, salaries in jobs within the Arab economyremain somewhat lower than in interethnic labormarkets. In addition, several studies show thatArab entrepreneurs tend to search for inter-ethnic economic networks (Semyonov andLewin-Epstein 1993; Schnell et al. 1995). Thesecontradictory results, as well as the unique posi-tion of Israeli Arabs as a peripheral ethnic minor-ity, call for an analysis of the structural impacts ofperipherality on Arab sales markets.
The Structure of Market Linkages of Firmsin the Periphery
Location in the national sociospatial peripherymay place an added economic burden on ethnicentrepreneurs. Within socioeconomic space, dis-tance from large markets and complementaryeconomic activities upon which the functioningof the plant depends obviously reduces opportu-nities. Moreover, remoteness from economies ofscale, from information on market conditions,and from the business infrastructure dedicated toevaluating opportunities may block growth op-portunities even further (Pred 1977; Van Geen-huizen and Nijkamp 1995). Peripheral industriesfound in the early stages of integration into acapitalist economy tend to suffer from a lack ofrisk-reducing mechanisms. As a consequence,entrepreneurs find it almost impossible to takerisks necessary in competing with capital-inten-sive corporations. In many cases, only govern-ment intervention can create a risk-reducingentrepreneurial milieu (Grossman 1984). Giventhe lack of risk-reducing institutions, entrepre-neurs may adopt a mimicking behavior strategy—that is, they may tend to imitate successful ven-
tures in their surroundings. This strategy leads tothe opening of a large number of similar smallenterprises that make do with the low profitsafforded by limited local markets (Czamanski andTaylor 1986).
Once such entrepreneurs gain some en-trepreneurial experience and succeed in breakinglocal barriers, their development routes may bechanneled by the large corporations which domi-nate capitalist production. Industries in the pe-ripheral areas of corporate capitalist economiestend to expand into marketing chains in a clearspatial division of functions. The first types in-clude large plants characterized by labor-inten-sive mass production of inexpensive standardizedproducts for national markets. Here, most salesare directed to the sizeable markets located pri-marily in large metropolitan core areas. The sec-ond type includes small businesses existingalongside larger enterprises. These plants mainlymanufacture intermediate products which consti-tute inputs for the larger enterprises in their regions,or serve the demand created by the local end-users.Mostproducts fromtheseplants are thussoldwithinthe peripheral region itself (Felsenstein 1992).
The literature contains an ongoing discussionof a more complex pattern of markets that mayappear in economies displaying a shift towards aflexible form of production and capital accumu-lation (Hagey and Malecki 1986; Storper andScott 1989; Amin and Robins 1990; Digiovanna1996). But these new developments, which havehardly affected Israeli-Arab entrepreneurship,are beyond the scope of our analysis.
A Conceptual Model of Arab Markets
It would thus appear that ethnicity andperipherality may place cumulative burdens onthe processes of industrial growth and marketexpansion (Schnell et al. 1995). Both factors tendto channel sales towards a set of sociospatiallystructured submarkets. Peripheral ethnic entre-preneurs, whose plants are in the initial stages ofintegration into capitalist systems, tend to sellmainly to local intraethnic markets. In laterstages, after either ethnic or peripheral barriersare broken, they may expand into nonlocal, morecomplex markets. While the discussion on ethniceconomies has emphasized the dichotomy be-tween local and nonlocal markets, the discussionon peripherality subdivides nonlocal markets into
320 Schnell et al.
regional and national markets, either in the coreor in the periphery, and international markets.
These developments may take place in intra-or interethnic spaces. When ethnic and periph-eral barriers are difficult to overcome, plants mayexpand into regional spaces within the ethnicenclave and the national periphery. Regionalmarkets may follow either the middle-personmodel (Ward 1985) or an integrative model.Where peripheral barriers are breached, plantsmay expand into national markets dominated bysales to the national core. Where ethnic barriersare broken, interethnic markets may develop onregional, national, and international scales.
A schematic model of the possible markets ofperipheral ethnic minorities is offered in Figure3a. Two factors, the capitalist space economy andethnicity, determine a division of potential mar-kets into four sections, each subdivided into anumber of scales. In applying the general modelto the case of Arab industry in Israel (Figure 3b),several patterns can be recognized. Historically,Israeli Arabs have relied on mimicking strategiesand local intraethnic markets. It is only since the1980s that an increasing number of Arab enter-prises have begun to reach out to new, moredemanding, and riskier markets. At present, themode of industrial growth and the newly emerg-ing markets are determined by two forces, each ofthem associated with specific spatial patterns:first, ethnicity may divide space into Arab versusJewish markets; and second, the capitalist spaceeconomy may divide into core versus peripheralregions. Each of the peripheral and core marketsmay be subdivided into growing ranges of submar-kets (Figure 3a). Some of the hypothetical mar-kets, however, are irrelevant for Arab industry inIsrael, where all local markets are Arab, and allcore markets are Jewish by definition. In addition,all the Arab settlements’ home regions are lo-cated in the national periphery. Therefore, theapplication of the general model to the specificcase of Arab markets in Israel produces ninepossible markets (Figure 3b). We now examinewhich of the hypothesized routes of market ex-pansion Israeli-Arab industrial entrepreneurshave actually followed since the 1980s.
Research Methods
Our analysis of the pattern of Arab industry inIsrael decomposing it into subpatterns along eth-nic and spatial economic dimensions raises three
research questions. First, into which of the ninetheoretically deduced submarkets (Figure 3b) didIsraeli-Arab entrepreneurs manage to expand inpractice? Second, is it possible to distinguishamong types of enterprises according to thenumber of markets into which each of them ex-panded, and the order of expansion into thesemarkets? Third, to what extent did entrepreneursbreak ethnic and peripheral barriers, thus ena-bling them to expand into interethnic and inter-regional markets, and exploiting opportunities inan increasing number of sections of the Israelieconomy? In answering these questions, we haveadopted a methodology that makes use of theflexibility of GIS-based data analysis. We haveavoided a deductive approach, which limits us tothe consideration of a priori, theoretically de-duced hypotheses. Instead, the visualizationmethodology we suggest here may allow the rec-ognition of new sales patterns and the identifica-tion of new explanatory factors.
Sample
A sample of Arab settlements and enterpriseswas surveyed in 1992 within the context of anextensive study of Arab industry and industrialenterpreneurship in Israel (Schnell et al. 1995).An Arab enterprise was defined as any plant,directly owned by Arabs, that acted as a produc-tion unit employing at least three workers. Of the900 Arab-owned enterprises operating in 1992,the managers and owners of 514 plants (57 per-cent of the total) were interviewed. These re-spondents were located in thirty-five of thesixty-one settlements having industrial plants.This included 80 percent of the settlements in themountainous Galilee and the Little Triangle re-gions (Figure 1). Settlements in other areas, andseveral settlements in the Galilee and the LittleTriangle with less than seven plants each, wereexcluded from the sample because industry wasmarginal to their economy. In most of the thirty-five settlements all the plants were surveyed,except in the four largest ones, i.e., Nazareth,Shefaram, Taiyibe, and Um el Fahm, where weconducted a random sample. In Nazareth, whichcontains the largest amount of plants, the surveycovered 25 percent of the total, while in the otherthree settlements 70 percent of the plants wereincluded in the sample. For the aggregated analy-ses, the data for these settlements were weightedby a factor determined by the size of the sample.
Arab Industrial Markets 321
Figure 3. A schematic model of the theoretically deduced market patterns: a. the general model considering theeffect of space economic and ethnic structures of the market; b. the specific case of Arab industrial markets.
322 Schnell et al.
The survey was comprehensive, including dataon the origin of inputs, the destination of outputs,and related characteristics such as sector andproduct line (Schnell et al. 1995).
Data Analysis
The data were analyzed in two stages, each ofwhich responds to one research question. First,the pattern of all sales from all the settlementswas decomposed (broken down) into a number ofsubpatterns, each corresponding to a commontype of destination (e.g., metropolitan cores).Each subpattern was associated with a differentmarket. Second, groups of plants, participating incommon configurations of submarkets, were ana-lyzed in order to investigate the entrepreneurialroutes of expansion and subtraction of markets.In the final part of the investigation, we analyzedthe relative impact of the two structuralforces—namely, ethnicity and space economy—on the emerging pattern.
The first stage of decomposition seeks to over-come the fundamental problems of hypothesisformation encountered in interpreting a complexstructure of industrial linkage patterns. The de-composition was performed with a GIS-basedmethodology. The application of ArcCAD GIS,designed by the authors, allows an interactiverecurrent tabulation of the industrial linkages andpresentation of results as a “table of maps”(Benenson et al. 1996, 1998). The decompositionprocess is similar to conventional methods ofcross-tabulation and residual analysis. The basicunit of analysis is a sales link established betweenthe settlement of origin and the settlement ofdestination. What differentiates ours from theconventional approach to cross-tabulation is howthe units are classified and the manner in whichthe set of observations (links) that fall into eachcell of a “table of links” are exhibited and charac-terized. When classifying numerical observations,we characterize the cell data by their mean, vari-ance, row/column/cell frequency, etc. When weclassify links, the links of a table cell constitute aspecific linkage subpattern that can be representedon a map. Instead of comparing cells’ statistics bymeans of standard statistical methods, we rely onthe flexibilityofhumanvisual interpretationofmapsto discern the patterns in the cells.
The overall pattern of industrial sales links isdecomposed in the recursive procedure shown inFigure 4. First, at each step of the recursion, (an)
ad hoc factor(s) that can influence the pattern ofsale links is (are) hypothesized. Second, the linksthat belong to an inscrutable part of the salerelations are tabulated according to the factors’classes. Third, if any shared meaningful pattern isrecognized in the cells of the same row or columnof a table, it is extracted. Fourth, a statisticalanalysis is performed on the extracted pattern, inorder to further analyze its structure. The nextstep of the recursion proceeds with the residualset of links. The analysis can reach a dead end if,at some step of the recursion, no common patternis identified for the selected factor(s). In such asituation, the process can be restarted from oneof the previous steps, with (a) new factor(s) anda different path followed. This approach is em-ployed below to decompose the pattern of saleslinkages identified in our sample into a number ofsimpler components.
At the first stage of the analysis, we identifiedfive subpatterns associated with each market.The analysis at the second stage is based on theseresults. The basic unit of analysis at this stagebecomes a vector that represents a plant’s partici-pation in these markets. We call this vector a“plant’s market profile.” The profile is a Booleanvector with the number of components equalingthe number of submarkets discerned, and eachcomponent designating expansion into a certainmarket. To understand the evolution of the indi-vidual plants within the set of markets, as well asthe development of the markets themselves, weuse Partial Ordinal Scalogram Analysis (POSA)(Guttman 1968). The conclusions concerningmarket development are based on the assumptionthat a decision to enter or to withdraw from amarket is made by the entrepreneur in a prestruc-tured milieu. Therefore it is highly feasible thatsuch decisions are repetitive and follow the exist-ing structure of markets. POSA unravels com-mon paths of market entry and withdrawal. Itoperates with a graph of “market relations” onwhich the nodes correspond to profiles and arearranged in descending order according to thenumber of markets in which the plants partici-pate. The lowest level consists of nodes corre-sponding to one-market profiles, the precedingone of two-market profiles, etc. The edges of agraph connect nodes of adjacent levels only; twonodes are connected if the profile on the upperlevel includes all markets on the lower level. Theaim of POSA is to construct a “scalogram,” thatis, to represent a graph of market relations in aplanar form.
Arab Industrial Markets 323
In general, the question of whether a scalo-gram (i.e., planar presentation) can be con-structed for a given graph is a complicatedmathematical problem (Harary 1969). The graphof market relations we analyze in this paper (i.e.,Arab plants) cannot be represented in such afashion. For this more complex situation, we con-sider the “most planar” presentation of a graph ofrelations, that is, we arrange the nodes in such away that the number of intersecting edges isminimized. In consequence, we are able to obtaina representation of the graph of market relationsthat is very close to planar. The resulting ex-tended scalogram displays the expansion or with-drawal of individual plants from the respectivemarkets (Lingoes 1973). Based on the scalogram,we can conclude the second stage of the investi-gation with an analysis of the plants’ break-throughs into interethnic and interregionalmarkets.
Decomposition of SalesLinkages Patterns
The goal of this section is to unravel the mar-kets that Israeli-Arab enterprises are utilizing. We
start the analysis from a map that presents theoverall pattern of industrial sales from Israeli-Arab-owned plants (Figure 5). It is worth notinghere that links within settlements have zerolength at the chosen scale and, thus, are repre-sented on the map as points.
The initial map is too complex to be visuallyinterpreted, and thus requires decomposition intosimpler submarkets. In the decomposition, weinvestigate how many submarkets Israeli-Arabenterprises actually participate in out of the ninehypothetical markets derived by the theoreticaloperationalization of ethnicity and peripherality(Figure 3b). We conclude the decomposition pro-cedure with five recursions, corresponding to thefive actualized markets plus a few residual saleslinks. Figure 6 summarizes the investigation ofmarket patterns. While the detailed descriptionof each recursion is described later, it may beconcluded here that four patterns of linkagesdescribe 95 percent of all the sales destinations.An additional 3 percent is directed towards inter-regional destinations, and the other four possiblemarkets attract the remaining 2 percent.
We turn now to each step of the decompositionrecursion. As described above, each step involvescross-tabulation of the linkages according to adhoc hypothesized factors. At the first stage, usingthe ArcCAD application, we test a number offactors such as age of the plant, its location, anddistance from metropolitan centers. The first se-lected pair of factors, which entails a coherentpattern in the cells of a classification table, con-sists of industrial branch and firm size (measuredby volume of sales). The choice of these factors isbased on the common-sense hypothesis thatlarger plants have better opportunities to expandinto wider markets outside their settlements, andthat the chosen markets may be dependent onproduct characteristics. In the resulting table oflinkage patterns identified at stage 1 (Figure 7),the rows correspond to industrial branch and thecolumns to three categories of annual sales vol-ume: (1) < $150,000, (2) $150,000–750,000, and(3) > $750,000. In this and the following figures,the link is expressed by a line connecting theplants’ settlement with the sales-destination set-tlement. This line has a width of zero at the origin,broadening in proportion to the value of the salesvolume at the destination.
Visual analysis and comparison of linkage pat-terns in the first step of the decomposition recur-sion (Figure 7) yields coherent patterns in allthree cells of the textiles and clothing branch
Figure 4. A flow chart describing steps in the analysisof spatial network patterns.
324 Schnell et al.
Figure 5. The spatial distribution of all sales linkages. The map emphasizes the complexity of the distribution to adegree that no clear pattern can be identified.
Arab Industrial Markets 325
Figure 6. Decomposition of the sales linkages into the five major Arab submarkets and the distribution of salesamong these markets (%).
326 Schnell et al.
(Figure 7, upper row). All three subgraphs, re-gardless of plant size, follow the same basic patterndistinguished by sales to the Jewish-dominatedmetropolitan areas of Tel Aviv and Haifa, andoverseas. This can be explained by the fact thatmost Arab-owned textile and clothing plants op-erate as subcontractors for large Jewish-ownedcompanies in these metropolitan areas. Evenlarger plants have failed to free themselves fromJewish corporations in order to develop inde-pendent markets. The significance of the afore-mentioned pattern is demonstrated by the rate ofsales to the Tel Aviv and Haifa metropolitancores, to Jerusalem, and to destinations abroad,which accounts for 89.9 percent of the total salesvolume of this branch. But two other observationscan be read regarding this industry. First, anincrease in the size of the industrial operation, asidentified by the volume of sales, is accompaniedby an increase in the percentage of exportedoutput. Second, as the size of the industrial op-eration grows, Haifa diminishes sharply in impor-tance, leaving Tel Aviv and overseas as the twoprincipal destinations. We may conclude that tex-tile subcontractors hardly contribute to local andregional markets while they remain obligated toproduce for corporations in the Jewish national core.
Smaller and medium-size plants in the wood-working and food branches do not display a clearsales pattern (Figure 7, middle rows), but in thecase of the larger plants there appears to be apronounced trend of sales to Jewish metropolitanareas. Viewed separately, food industry factorieswith large sales volumes have high-intensity linkswith the Tel Aviv metropolitan area, whereas forthe woodworking industry the stronger links arewith the Haifa metropolitan area. Therefore, theaspect identified in the first recursion step by avisual inspection of Figure 7 is the existence of asales pattern defined by Jewish customers locatedin the metropolitan areas (as emphasized by Fig-ure 6b). This is also characteristic of textiles andclothing enterprises. These sales to the Jewishcore account for 27 percent of the total sales ofArab industry in Israel.
The remaining maps in Figure 7 present morecomplex patterns that call for a second step ofdecomposition recursion. Some hints for a newpattern may be seen in the sales of constructionmaterial plants (Figure 7, lower row), the secondlargest branch in the Arab industrial sector. Thisnew pattern is characterized by sales to Jewishtowns. Proceeding to the second recursion step,we analyze only the residual pattern obtained by
excluding the sales links to the destinations of TelAviv, Haifa, Jerusalem, and overseas from theoverall pattern presented in Figure 5. By tabulat-ing links of the residual pattern against various adhoc factors, the trend of sales to adjacent Jewishregional centers and their hinterlands becomesvisually more evident (Figure 6c). This is espe-cially apparent when links are tabulated accord-ing to two factors: a two-class factor termed“ethnicity of the customer” (Jewish or Arab); andsales volume, divided according to the same threecategories employed above. Twenty-one Jewishtowns, of which seven were particularly dominant(the towns of Tiberias, Afula, Nahariya, Akko,Hadera, Netanya, and the towns of the Sharonrepresented on Figure 5 by Kefar Saba) werefound to purchase 18 percent of all plant produc-tion in the four major branches. As visually rep-resented, most of these sales are directed toadjacent towns and their vicinity. Moreover,neighboring Arab plants seem to be grouped by acommon sales destination to Jewish towns. Thisfinding was further studied by verifying the clus-ters of Arab plants according to a predesignatedset of Jewish customers.
The cluster analysis was performed at the set-tlement level by merging the sales of plants lo-cated in each. A sett lement was thencharacterized by a vector demonstrating the vol-ume of sales of its plants to customers in Jewishtowns. The number of total components of thisvector was equal to the number of destinationsettlements, i.e., 21. Each component repre-sented the flow of sales of all plants in a givensettlement to a specific destination. In order toreveal the clusters, we proceeded with theSPSS/PC statistical package clustering procedurewith a ϕ2 measure of proximity between the twosales vectors (Norcliffe 1977). Six clusters of Arabsettlements emerged from the analysis. They rep-resent six compact regions of Arab settlements,each of which is composed mainly of neighboringsettlements, the sole exception being Maghar,which belongs to the region of Nazareth insteadof Saknin. The plants located in the settlements ofa given cluster sell to customers in the same Jewishtowns. For example, the enterprises in the regionconsisting of Yirka, Kafar Yasif, Judeida-Makr, andJulis in the Western Galilee, sell most of theirproducts to the adjacent Jewish towns of Akkoand Nahariya. In the same manner, the plantslocated in the settlements of the Little Trianglesell most of their products to their Jewish neigh-boring towns of Hadera, Netanya, Kefar Sava,
Arab Industrial Markets 327
Figure 7. The spatial distribution of sales linkages of plants by major branches and sales volume in dollars.
328 Schnell et al.
and Petah Tiqwa. The analysis of the secondrecursion exposes an interethnic market arrangedaround six Arab regional settlement systems sell-ing to Jewish markets within their home regions.These sales amount to 18 percent of the total.
In the third step of decomposition recursion,we explore the sales pattern obtained after thelinks to Jewish metropolitan cores and to Jewishneighboring towns are extracted. The residualpattern consists of links among and within Arabsettlements. The pattern of links within settle-ments is quite significant, accounting for some 25percent of total sales (Figure 6d). After beingextracted, the residual sales are expanded in thefourth recursion into links between the Galileeand the Little Triangle (Figure 6f), and saleswithin each of these two regions of Arab industry(Figure 6e). Interregional intraethnic sales be-tween Arab regions comprise about 3 percent oftotal sales, 85 percent of which are from the LittleTriangle to the Galilee, with only 15 percent inthe opposite direction. Most of these intraethnicinterregional linkages exist among the larger set-tlements, particularly Umm el Fahm and Baqa elGharbiya in the Little Triangle, both of which sellto several towns in the Galilee. The regionalfactor further divided the residual network intotwo regional markets: the Galilee in the north andthe Little Triangle in the south. These intraethnicregional markets add 25 percent to the total sales(Figure 6e). We halted the analysis at this stagebecause we could not discern, either visually orwith the help of cluster analysis, any pronouncedpatterns of sales within these two regions.
At this point, it could be concluded that, of thenine theoretically deduced patterns suggested byFigure 3b, five were actually identified in Arabindustry in Israel (Figure 6). The most frequentare sales to Jewish metropolitan core areas, thento intraregional and intrasettlement markets, fol-lowed by Jewish markets in neighboring regions.One market (interregional, intraethnic) re-mained only marginal, with a mere 3 percent oftotal sales. The last three markets indicated byFigure 3a (Palestinian territories, Jewish settle-ments in Palestinian territories, and distant Jew-ish regions) remained insignificant, accountingaltogether for only 2 percent of the sales linkages(Figure 6g).
The major conclusion to be drawn from theanalysis in this section is that since the 1970s andeven more since the 1980s, Arab plants havesucceeded in expanding into new markets beyondthe local ones previously penetrated. By 1992,
they had already expanded into five of the ninepossible markets. Although half of the linkagesare still within intraethnic local and regional mar-kets, this major part of the remaining linkages (45percent) indicates a preference for expandinginto interethnic markets instead of expandinginto Arab markets in Israel and the Palestinianauthority.
Plant Participation in theDifferent Markets
In this section, we analyze the configuration ofparticipation in the five different markets identi-fied in the former section, and the order in whichentrepreneurs add or subtract markets. Unlikethe above analysis, in which the basic unit was asales link, in this section, we focus on the plantas the basic unit of analysis and ask what types ofmarket configurations different plants create forthemselves. A number of suggestions may beformulated regarding the order in which a givenplant adds or subtracts each of the five actualmarkets identified in the analysis. It may be hy-pothesized that smaller and younger plants par-ticipate mainly in local markets, being morevulnerable to structural barriers, while largerplants participate in a greater number of broadermarkets because they are more successful inbreaking interregional and interethnic barriers.These and similar hypotheses are tested and theassociation between plant turnover and the formof participation in the respective markets is analyzed.
Each plant in the POSA is characterized by a“participation profile,” which depicts participa-tion in the five markets differentiated above. Wepresent the results of the POSA in two scalo-grams, one for textiles and clothing-market ex-pansion alone and one for the other branches.The reason is that textiles and clothing firms,unlike other branches, are highly dependent onlinks to the national core. While the scalogramfor textiles and clothing is simple and planar(Figure 8), that for the other branches is complex,although approaching a planar form. We suc-ceeded in arranging 91 percent of the plants in aplanar order, or 99 percent in the close-to-planarorder, with only three pairs of edges intersecting(Figure 9).
The number of all possible participation pro-files for plants with five potential markets equals25 –1 or 31. In practice, twenty forms of partici-pation profiles were identified, with two thirds of
Arab Industrial Markets 329
the plants characterized by only four profiles. Thismeans that most Arab plants in Israel expand intothose markets in a few well-structured ways. Themost frequent profile, presented in Figure 9, rep-resents 112 plants that sell to customers withinboth the settlement and the home regional mar-ket (000HS, n=112). The second most frequentprofile, which differs from the first by adding theneighboring Jewish markets to the two formermarkets, is practiced by eighty-eight plants(0J0HS, n=88). The planar scalogram for tex-tiles and the near-planar one for the otherbranches highlight five (nonexclusive) structuredtrends of market expansion and withdrawal. Theyare represented in Figures 8 and 9 by arrows ofdifferent shapes and intensity. The first trendcharacterizes the textiles and clothing industry(sixty-two plants). Seventy percent of these en-terprises, including the larger plants that act assubcontractors for large corporations in Israel, sellonly to metropolitan markets (Figure 8, profileM0000). No other profile dominates textile plants’market configuration.
For the other branches, the form of participa-tion ranges between expansion to more distantmarkets and narrow sales to markets in the plant’svicinity (Figure 9, broad continuous line). Thesimplest form of participation concentrates onlocal markets within the settlement (0000S).The pattern reveals that new markets are addedin the following order: home regional markets(000HS); either Jewish neighboring markets(0J0HS) or metropolitan markets (M00HS); thetwo remaining markets (MJ0HS); and finally par-ticipation in all five markets (MJAHS-profile).All told, 328 plants participate in profiles follow-ing this most dominant trend, although some alsoshow additional patterns of participation.
Profiles of the second most-dominant trend(Figure 9, broad fragmented line) apply to 209plants. These enterprises start by selling to theJewish sector in neighboring Jewish regions, themetropolitan cores, or both (0J000, M0000,MJ000). Once Jewish markets are chosen as des-tinations, entrepreneurs return to local Arabmarkets (M000S, 00J0S, MJ00S) and then ex-pand to distant Arab markets (MJ0HS) and fi-nally to all five markets (MJAHS).
The plants that expand according to the thirdmost frequent trend (profiles applying to 185plants) restrict themselves to Arab intraethnicmarkets before turning to Jewish markets (Figure9, gray discontinuous line). In addition to thoseplants that sell to local and home regional mar-
kets, which are exclusively Arab (profiles 0000Sand 000HS), twenty-five plants fail to break eth-nic barriers even when they expand into a thirdmarket. Instead, they restrict themselves to Arabmarkets in their home settlements, region, andother Arab regions (profile 00AHS). The lasttrend, characterizing up to 20 plants, refers tothose that concentrate on metropolitan markets:M0000, M0A00, M0A0S, MJA0S, MJAHS(Figure 9, gray continuous line).
The association between the number of mar-kets in which a plant participates and its size interms of turnover is relatively weak. For branchesother than textiles and clothing, the average turn-over of the plants that participate in only onemarket is significantly lower, and for those partici-pating in five markets is significantly higher, thanfor the plants on the three intermediate levels(Figure 9, ANOVA with Schaffe pairwise com-parisons at 5 percent significance level). For thetextiles and clothing industry, the situation isreversed. The plants that participate in only onemarket (selling to the metropolitan cores) arelarger than the others (Figure 8), but the differ-ences are not significant. Thus, except for theextreme categories, the ability to expand into anew market does not seem to depend on a plant’sturnover. Cross-tabulation of plants according tosize and the number of markets in which theyparticipate yields χ2=20.4 with df=20, corre-sponding to p ≅ 0.4. It would appear, therefore,that even small plants have a good chance ofsuccessfully expanding into any of the five mar-kets in which Arab enterprises are already in-volved, including distant and interethnic ones,thus proving the ability of this sector to break thestructural barriers in terms of sales.
Structural Forces asMarket Barriers
The relative impact of each of the two barriers,peripherality and ethnicity, on the expansion ofsales linkages may be deduced from the deci-sions taken by entrepreneurs when choosingtheir markets. Table 3 shows the percentage ofenterprises in all branches, excluding textiles andclothing, that has overcome any of these twobarriers by the number of markets into which theenterprise has expanded. To construct this table,we determined that a plant would be said to havebroken the barrier of ethnicity when neighboringJewish (J) or metropolitan (M) markets were
330 Schnell et al.
utilized, and the barrier of the peripherality whenthe plant sold to metropolitan (M) markets.
Table 3 indicates that as soon as plants partici-pate in two markets the ethnic barrier is brokenby almost one third, while the barrier of peripher-ality is overcome by only 18 percent. When plantsexpand into their third market, the ethnic barrierfalls and almost all these enterprises have links with
Jewish markets, while about half still do not sellto the metropolitan cores or to markets beyondtheir home regions. Thus, the barrier of peripher-ality (location in social and geographic space)appears to be more salient to market expansionthan ethnicity. Regarding peripherality, Arab en-trepreneurs are channeled into markets in theirown vicinity within the national periphery, or into
Figure 8. Scalogram describing the planar order of market expansion and withdrawal of textiles and clothing plants.
Arab Industrial Markets 331
metropolitan cores as subcontractors, especiallyin the case of textiles and clothing. With regardto ethnicity, the analysis shows that Arab entre-preneurs enjoy a good chance of expanding intoJewish markets, and some do so even in the earlystages of their development. Arab industry, how-ever, does not entirely acquire the advantage ofsharing in Jewish markets. As shown by Schnell(1998), the volume of sales to Jewish markets
is significantly lower than might be anticipatedaccording to a gravity model that assumes aboundless market space.
These findings concerning the dominant im-pact of peripherality on the pattern of the salesnetwork were further confirmed in interviewswith a sample of seventy entrepreneurs. Moststressed three major points: the fact that ethnicbarriers impede Arab entrepreneurship; the
Figure 9. Scalogram describing the planar order of market expansion and withdrawal of all branches except textilesand clothing.
332 Schnell et al.
feeling that once barriers are broken and Arabentrepreneurs develop their reputation on theone hand, and learn to operate in the Jewishbusiness milieu on the other, they are treatedfairly in the market; and strong optimism as totheir ability to overcome these market barriers.Many of those who succeeded in expanding intowider markets added that once barriers were bro-ken and they learned to adapt to Jewish businesspractices and modern market requirements theydid not experience any disadvantages.
It also appears that the ability to break ethnicbarriers is highly dependent on entrepreneurs’worldviews. One older, less-educated entrepre-neur expressed a pessimistic attitude:
Jews refuse to buy concrete blocks from an Arabindustrialist because they want to give business toJews, not to Arabs. I sell high quality products atcheaper prices, but I don’t get Jewish customers. . . .I have not applied for the seal of the Israeli Bureauof Standards since my customers in the village knowthe quality of my products and Jewish customerswon’t buy from me in any case.
In contrast, many other entrepreneurs, typi-cally younger and/or more highly educated (highschool education and above), seem to better un-derstand the Israeli business milieu existing be-yond their home region, and make a special effortto reach Jewish markets, as explained by one suchentrepreneur:
A relative from my extended family is a buildingcontractor who works for Jewish customers in thenew towns and villages in the Galilee. I asked himto buy the materials for the houses he builds frommy plant. I promised his clients attractive prices andshort delivery time. The latest tendency among Jewsin new towns in the national periphery to build theirown homes has given small plants like mine a goodopportunity to compete for these markets.
Some entrepreneurs originally opened theirplants with the intention of reaching Jewish mar-kets. One furniture manufacturer from a settle-ment near Tel Aviv even hired a Jewish designerand secretary on the assumption that they wouldbe better able to communicate with and under-stand the tastes of Jewish clients. The textiles andclothing plants, on the other hand, display differ-ent models of market expansion. One typicalexample is an entrepreneur from Kafar Manda inthe lower Galilee:
First I worked as a driver. I drove the [women] tothe Delta factory [the production unit of a largeJewish-owned parent company in a neighboringJewish town]. Later I opened a sewing shop in myhome as a subcontractor for Delta. Today I work foreveryone—for stores in the village, for Nazareth andfor businesses in Tel Aviv. I have even started toexport. When you are reliable and do a good job,people get to know you and you get a lot of work.We, the Arabs, have to be better and cheaper inorder to succeed, but if you do a good job, you canmake it.
This example demonstrates how subcontract-ing has the potential to support entrepreneurshipand enable enterprises to expand into new mar-kets. Thus far, none of the Arab subcontractorshas succeeded in becoming independent, but thistrend offers hope that the breakthrough will takeplace in the foreseeable future.
In addition, younger and more educated entre-preneurs seem better prepared to operate in thecomplex milieu of a modern interethnic econ-omy, and many have succeeded in breakingthrough these barriers. The most difficult impedi-ment, however, which few Arab entrepreneurshave managed to overcome, is the need to com-pete against large corporations. Yet resourceful-ness, perseverance, judicious exploitation ofrelative advantages, and skill in the art of nego-tiation all served the owner of a pita-bread bakeryin a settlement in the Eastern Galilee when hewas forced to compete against a large bakery thatdominated the regional market:
It was hard to compete against the bakery’s monop-oly because they forced customers to buy their pitaif they wanted their bread. Our pita is better, wesupply it twice a day instead of once, we give creditand we have personal contacts with our customers.We were forced to buy bread in Haifa in order tofight the monopoly. Today we have an agreementwith the large bakery. They sell the bread and we
Table 3. Barriers Overcome by Plants throughMarket Expansion
Number of Markets Barriers Overcomea
Entered Ethnicity Peripherality
1 19 82 31 183 96 434 100 1005 100 100
aby percentage of plants in survey.
Arab Industrial Markets 333
bought the right to use their marketing system to sellour pita.
Such interviews lend support to our conclusionthat Jewish markets may be open to Arab firms aslong as they do not threaten the broader marketsdominated by large corporations. When the in-terests of large corporations are threatened, Arabentrepreneurs, who are marginalized from thepolitical and economic elite, lack the necessaryresources to compete with the monopolies. Theironly advantages are their strong determination,flexibility in serving customers, and willingness tosettle for lower profits.
Conclusions
This paper offers a two-stage methodology forthe understanding of industrial sales patterns asrepresenting sociospatial relations and their im-pact on entrepreneurship. In the first stage, wedecompose the overall pattern of industrial link-ages into a number of patterns relating to differentmarkets. The process of decomposition is basedon the technological advantage of GIS in simul-taneously processing large amounts of both geo-graphical and numerical information. Theidentification of a common pattern takes advan-tage of the flexibility of human visual capacitiesin discerning complex images. This stage providesus with the appropriate decomposition of an over-all set of sales linkages into a number of salespatterns, each one generated by a given market.
In the second stage, we analyze the forms ofplant participation in the markets identified inthe first stage and the trends of expansion into,or withdrawal from, those markets. This is doneby investigating the graph of the relationshipsbetween the plants’ market profiles. The planaror close-to-planar presentation of the graph re-veals that routes of expansion or withdrawal frommarkets are highly structured and therefore pre-dictable. This analysis makes it possible to studythe impact of peripherality and ethnicity, all thewhile keeping in mind that they operate simulta-neously.
In addition to its flexibility, this methodologyhas the potential to close the gap between micro-and macrostudies concerning the relations be-tween entrepreneurship and regional and/orsectoral development (Markusen 1994). In thisinvestigation, we decomposed the sales patternsof individual plant sales linkages, and then ana-
lyzed the macrolevel organizing structure basedon entrepreneurial decisions regarding expansioninto or withdrawal from particular markets.
Our investigation revealed the behavior of anindustry that is still highly disadvantaged anddistanced from opportunities and resources. Nev-ertheless, Arab industry in Israel has been under-going a restructuring process since the 1970s.Arab entrepreneurs are abandoning their tradi-tional mimicking strategy and beginning to en-gage in more competitive participation in theeconomy. This study showed that in their searchfor wider markets Arab entrepreneurs have chan-neled sales to at least five different markets andopened marginal ties with the other four. Evensmaller enterprises have shown considerableflexibility in choosing a form of participation inmarkets, including sales to distant and in-terethnic markets. Plants have utilized twenty ofthe thirty-one possible forms of participation inthe market, expanding into a variety of new mar-kets, an indication that Arab entrepreneurs whoperceive the barriers of ethnicity and peripheral-ity as being surmountable are adopting a newcompetitive strategy. These findings are consis-tent with those obtained in our previous study, inwhich the analysis of entrepreneurial decisionsrevealed highly determined entrepreneurs willingto take risks and to make personal sacrifices inorder to exploit any available opportunity(Schnell et al. 1995).
The proposed model is representative of indus-tries in deprived regions of the national peripheryof economies dominated by large corporations.According to the theories discussed above, indus-tries located in national peripheries of corporatesystems tend to develop two kinds of markets.Smaller plants tend to concentrate on regionalmarkets in the periphery, selling to end-users andadjacent larger production units. Larger plants,usually owned by major corporations, tend tochannel their products to the main national andinternational markets concentrated around themetropolitan cores. In our study, the majority ofArab enterprises indeed channeled their produc-tion to regional markets located in the periphery.One-third of the plants, almost exclusively in thetextile and clothing industry regardless of size,sold to the metropolitan cores, but only as sub-contractors. The small number of more intensivelinkages with distant markets is a result of thedisadvantaged status of Arab industry in Israel.Government policy allocates industrial parks andsubsidies mainly to new Jewish towns, in some
334 Schnell et al.
cases in the vicinity of Arab settlements. There-fore, large corporations have no incentive to in-vest in the development of production units inArab towns (Bar-El 1993). Smaller local enter-prises, like most Arab-owned plants (with veryfew exceptions), are incapable of competingagainst the strategies employed by monopolisticcorporations whenever their status is threatened.This leaves only restricted market niches open toArab entrepreneurs.
It would thus appear that Israeli-Arab en-trepreneurship is constrained more by its periph-eral status than by ethnic subordination. Arabentrepreneurs frequently fail to compete withJewish monopolies, the latter blocking their abil-ity to grow and to open larger markets. BecauseArab industrialization began after Jewish corpo-rate hegemony had already been institutional-ized, the impact of that structure has beendevastating to Arab entrepreneurship. Evidencefrom the interviews reveal that ethnic barriersmay be broken more easily than peripherality,although ethnic barriers further distance Arabentrepreneurs from national core markets. Itwould seem that a highly determined and flexibleethnic entrepreneurship in the periphery mightbe capable of breaking through some socioeco-nomic barriers. Despite this, peripheral entrepre-neurs probably do not have the power to changebasic structural relations in a corporate capitalistsystem by themselves.
Three essential questions must be posed at thispoint. First, are entrepreneurs who have over-come market barriers able to close economic gapsbetween the Arab and the Jewish sectors regard-less of government policy? Second, to what extentcan successful entrepreneurs influence the bal-ance of power between the two ethnic sectors?Third and more generally, a question concerningthe impact of ethnic cultural differences on in-terethnic networks and economic opportunitiesmay be posed. On the one hand, these differencesmay pose difficulties on ethnic entrepreneurs’ability to compete in the majority’s en-trepreneurial culture. On the other hand, mem-bers of the majority may use ethnicity as a meansto discriminate against ethnic entrepreneurs. Sofar, our research does not show any evidence thatthe highly determined Arab entrepreneurs wereable to restructure interethnic power relations.Their attempts to challenge monopolistic inter-ests were less than successful, and they failed tochannel public policies in support of their inter-ests. Despite it, entrepreneurs’ determination has
proven successful in exploiting even narrow win-dows of opportunities (in our case, opening newmarkets) as a means for socioeconomic mobility.
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Correspondence: Department of Geography, Tel Aviv University, P.O.B. 39040, Ramat Aviv, 69978, Tel Aviv, Israel(all authors); e-mail [email protected] (Sofer); [email protected] (Benenson); [email protected](Schnell).
