The Spatial Pattern of Arab Industrial Markets 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 of an ethnic community at the periphery of contemporary Israel. This case study delineates some of the challenges that ethnic peripheral minorities have to face in their attempts to integrate into late capitalist economies. It begins with the simultaneous construction of the pattern of sales linkages on micro- and macrolevels. In the first stage, based on a GIS application, we decompose the overall pattern of 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 each of the hypothesized markets. Investigation of this graph discloses the routes of expansion into or withdrawal from the different markets. This methodology provides a basis for studying the relative impact of 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 from opportunitiesandresources.Despite these circumstances, Arabindustry in Israel has been undergoing a restructuring process since the 1970s. In the course of restructuring, Israeli-Arab entrepreneurs have abandoned their traditional mimicking strategy and begun to show considerable willingness to 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 ethnic and regional boundaries. Moreover,even smaller enterprises have shown notable flexibility in choosing markets, 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 Jewish corporations; moreover, their status as ethnic minority has not helped them in their effort to mobilize government support on their behalf. Key Words: sales linkages, network decomposition, ethnic markets, plants, participation in markets, ethnicity, peripherality, Arab industry.

thnic entrepreneurship is a frequent focus large, or, alternatively, to what extent are they of discussion in studies of ethnic economic limited to intraethnic enclaves? The investiga- Edevelopment and interethnic economic in- tion of economic networks may be relevant for tegration (Aldrich and Waldinger 1990; Barrett the understanding of entrepreneurial dynamics, et al. 1996). The intensity and dynamics of inter- as well as for the study of social integration for firm linkages and networks are recognized indica- various reasons. Entrepreneurship is a major tors of industrial growth, as intensive linkages route for economic mobility among ethnic mi- may generate economic multipliers along with norities. Its success, therefore, may represent a other economic benefits to the local and the key step toward closing economic gaps with more regional economy (Scott 1991; Felsenstein 1992). privileged groups. Economic encounters with A key issue in these investigations is the degree other ethnic groups may open new interethnic to which firms are embedded in various markets social networks for their members, and expose through their relationships with competitors, sup- them to other worldviews. Interethnic interac- pliers, regional and national business organiza- tions among members of various groups may also tions, and public decision-making forums (Best break uneven relations in those labor markets 1990; Harrison 1992; Markusen 1994; where members of marginal groups are generally Lakshmanan and Okumura 1995). employed by members of more privileged groups. In the context of interethnic relations, we ask Entrepreneurs from ethnic minorities may be to what extent do ethnic entrepreneurs succeed affected by two major tendencies, which generally in developing economic networks with society at influence the sociospatial structure of economic Annals of the Association of American Geographers, 89(2), 1999, p. 312–337 ©1999 by Association of American Geographers Published by Blackwell Publishers, 350 Main Street, Malden, MA 02148, and 108 Cowley Road, Oxford, OX4 1JF,UK. Arab Industrial Markets 313 relations: spatial inequalities between core and The first section deals with the development peripheral regions under capitalist regimes, and of Arab industry in Israel and the structural set- marginalization of ethnic minorities into segre- ting of its development. The second suggests a gated enclaves. Our study focuses on ethnic en- theoretical model of market expansion ruled by trepreneurs’ expansion into various emerging industrialization, and is followed by a discussion submarkets in the sociospatial context of ethnic- of the research methods employed in the study. ity and peripherality. In this study of the entre- The fourth section analyzes actual industrial sales preneurs’ behavior, we investigate whether such patterns in the Arab economy at the aggregate minorities break barriers of economic develop- level; the fifth analyzes individual plants’ forms of ment and sociospatial boundaries towards eco- participation in the linkage patterns discovered nomic take-off and sociospatial integration into at the aggregate level. Weconclude with a discus- society at large. This paper examines the form and sion of the relative impact of the two sets of degree of Israeli-Arab industrial expansion into structural barriers, ethnicity and peripherality, on new markets, with emphasis placed upon the market expansion. forms of breaking through sociospatial bounda- ries. The Israeli-Arab case is an example of the impact of ethnicity and peripherality on marginal Arab Industrialization in Israel groups’ economic development and integration into the economies of pluralistic societies. Thekey The Arab population of the State of Israel (not question in this context is whether Arab industry in including the Palestinian Arabs living in the Gaza Israel has managed to develop new markets beyond Strip and the West Bank) amounted in 1997 to the intrasettlement linkages that characterized it about 1.2 million, or 19 percent of the total until the late 1970s (Shmueli et al. 1985; Meyer- national population of some six million. The Arab Brodnitz and Czamanski 1986). If so, to what extent population is concentrated mainly in three re- have these enterprises managed to break through gions in Israel: about two-thirds live in the moun- ethnic and peripheral boundaries? tainous region of the Galilee, twenty-two percent Toanswer these questions, we investigate Arab in the Little Triangle area at the fringe of the industrial linkages in Israel as a case study for central coastal plain and bordering on the West Bank, and about ten percent in the Beer-Sheba Arab businesses in general. Historically, Arab area in the south (see Figure 1 for locations). The urbanization and industrialization in Israel has rest reside in mixed towns and sparsely populated lagged behind the rest of the country, with pro- areas. There are about 130 Arab settlements in duction based on cottage industries that supple- Israel, most with a population ranging up to mented the rural economy. The current form of 30,000. One exception is Nazareth, which, with industrialization has been evolving since the about 60,000 inhabitants, has become the core of 1970s, after Israel’s economy had already shifted an Arab metropolitan area of more than 150,000, to a corporate capitalist system dominated by as well as the central place for the Arab popula- large Jewish corporations with monopolic or oli- tion in Israel. About half of the total Israeli Arab gopolic power over national markets (Schnell et population lives in urbanizing towns, the majority al. 1995). We could have focused the study on of which were transformed from rural settlements both industrial purchasing and sales linkages, in the 1960s and now range from 5,000 to 30,000 whose intensity and complexity indicate the de- inhabitants. Population growth dropped from ap- gree of integration into the national economy. proximately 4 percent annually in the 1950s to Purchasing linkages seem to show a simple pat- approximately 3 percent in the 1990s. Through- tern clearly dominated by links with the Jewish out this period, migration rates for most of the metropolitan cores, with the remainder pur- Arab settlements remained low. chased mainly from local Arab agriculture. By In terms of integration into labor markets, comparison, sales linkages are more complex, Israeli Arabs made two major shifts, one during being characterized by higher degrees of sociospa- the 1960s and one during the 1970s (Table 1). tial integration into the national economy. We Between the late 1950s and 1960s, agricultural focus on industrial sales because industry was a employment decreased from about two thirds of leading branch in the transformation of Israeli the workforce to eighteen percent. Those who Arab settlements from a peasant to urban econ- left agriculture joined “secondary labor markets,” omy (Meyer-Brodnitz and Czamanski 1986). primarily construction and services, but also, to 314 Schnell et al.

Figure 1. Arab settlements in the Galilee, the Little Triangle, and other regions by population size. Arab Industrial Markets 315

Table 1. Employment Distribution of Israeli martial-law restrictions that channeled more Arabs by Year and Economic Branch (%) than half of the Arab workforce into commuting to “secondary labor market” jobs in the national 1954 1961 1972 1986 1994 core, in branches such as construction, agricul- Agriculture 58.2 42.2 18.4 8.2 4.6 ture, low-paying industries, and personal services. Industry 10.0 16.6 12.5 24.9 23.3 The number of Arab workers employed in indus- Electricity, water 0.8 0.3 0.5 0.4 try grew to 5,700 in 1955 and 10,900 in 1963. Construction 8.5 14.4 26.6 15.6 19.3 Transport 2.5 4.2 7.8 7.1 5.3 Some 3,500 of these workers were employed by Commerce 6.5 6.7 15.0 15.1 13.5 about 1,000 Arab-owned workshops, about 2,000 Financing 0.8 2.8 5.0 of them as salaried employees (Zarhi and Public services 10.9 11.8 13.5 19.2 20.1 Achiezra 1966). Personal services 1.6 3.3 5.1 6.6 8.5 Total 100.0 100.0 100.0 100.0 100.0 Government policies began to incorporate the Arab sector into the national economy in re- Sources: Central Bureau of Statistics, 1954–1995. sponse to the acute poverty manifested by inci- dences of malnutrition in the villages that were some extent, commerce within the Arab settle- blocked by martial law. National policies were ments, and transportation. The second shift took oriented first toward the transformation of Arab place in the 1970s, when many Arab workers were peasants into proletarian workers and consumers recruited to organized labor markets, mainly as of the growing Israeli production and, since the blue-collar workers in industry and, to some ex- late 1960s, toward integration into the national tent, as white-collar workers in public services. economy as a marginal ethnic sector.These trans- Two thirds of the workforce regularly commuted formations in the forms of Arab economic inte- to the metropolitan centers in the national core. gration into the general economy, along with the Since the 1970s, significant numbers of Israeli ensuing development of Arab industry, were Arabs were mobilized into white-collar profes- marked by three phases of restructuring of the sions, while some managed to open independent Israeli economy, but the impact of these phases enterprises. Industry made very slow progress un- on Arab industry was felt only after a certain til the 1970s, when the number of plants began delay. to grow rapidly. During the initial phase (1955–1967), oppor- tunities for industrial entrepreneurship in the Arab sector remained severely limited for several The Economic Context reasons: a lack of capital and professional skills; a lack of experience in a market economy; and, Arab industrialization must be understood most particularly, the absence of a rudimentary within its historical context, starting from Israel’s physical infrastructure in Arab communities war for independence in 1948. The Arab urban (Haidar 1993). Risk-minimization strategies in- sector had been decimated in the war, and the duced Arab entrepreneurs to imitate proven suc- small remaining community was largely rural, cessful enterprises and to refrain from investing restricted to its villages by martial law. The exist- in areas where other Arab entrepreneurs had ing production facilities were small, characterized failed (Czamanski and Taylor 1986). As a conse- by low levels of capitalization and intensive labor quence, only three branches—food, woodwork- utilization, drawn primarily from the extended ing, and construction materials—showed family. Most plants were involved in coal and lime significant growth (Khamaisi 1984). Enterprises production, stone quarrying, olive oil pressing, in these branches relied on newly emerging local flour milling, and pottery making. markets stimulated by high fertility rates and so- Soon after independence, the Israeli economy ciocultural norms that encouraged young couples shifted to a state-managed capitalist system in to construct their homes before marriage. Given which national capital was channeled to absorb the lack of productive investment opportunities, Jewish refugees from the Holocaust and Arab the capital accumulated by Arab manual workers countries and to securing housing and full em- was largely spent on housing. This gave rise to the ployment in new Jewish towns. The Arab econ- establishment of plants geared to the local hous- omy was almost completely excluded from ing market (Schnell 1994). national development plans. Only during the late After the Six-Day War in 1967, the national 1950s did the government remove some of the economy restructured once more, this time into 316 Schnell et al. a corporate-dominated system (Hasson 1981). and metals for construction projects in the Arab During this stage, large corporations, headquar- settlements; one third were in textiles and cloth- tered in the Jewish core, developed production ing; and the bulk of the remainder were in food. plants in the Jewish periphery, thereby creating In that year, Arab industry (in plants employing jobs for Arab workers in neighboring Jewish at least three workers) employed about 3,000 towns. By the late 1970s, almost a decade after workers, 70 percent of whom were women. the transition of the Israeli economy into a cor- Between 1983 and 1992, the number of Arab- porate one, the conditions for the second phase owned firms employing at least three workers of Arab economic restructuring emerged. Gov- more than doubled, reaching more than 900, with ernment policies emphasized the linkage of Arab the number of industrial workers employed in settlements into national infrastructure net- Arab settlements rising to about 13,000 by 1992 works, as well as the establishment of municipal (Atrash 1993; Schnell et al. 1995). Nevertheless, authorities and educational systems in the Arab Arab industry remained marginal to the national settlements. At the end of this phase, most Arab economy (Gradus et al. 1993). In 1992, Arab- settlements had acquired a basic infrastructure, owned enterprises employing five workers or thousands of Arab workers employed in Jewish- more represented nearly 5.5 percent of all such owned firms had gained industrial and profes- factories in Israel, and Arab workers employed in sional experience, and Arab educational levels those plants accounted for some 3.2 percent of had risen. In addition, women began to join the the labor force in factories (Central Bureau of labor force and sought employment in firms either Statistics 1995). The average size of Arab-owned in their own or in neighboring towns. On the plants grew from about seven workers in 1983 other hand, discriminatory government policies (Khamaisi 1984), to about fifteen in 1992 continued to deprive Arab industry of needed (Schnell et al. 1995). Almost all were owned resources and opportunities. Spread effects cre- jointly by family members, and only about one ated during this phase were channeled solely to the Jewish periphery, leaving the Arab periphery quarter were organized as formally registered almost totally dependent on either growth from firms(Table2).Textilebecametheleading below or subcontracting for Jewish corporations. branch, having the largest number of plants and The most significant change during this period workers as well as sales per plant. Construction- was the introduction of textile and clothing material plants intensified their production, in- plants, managed by Arab subcontractors, employ- troducing modern machinery, and branches like ing the large reserves of Arab women who had woodworking and metal began to diversify their low geographic mobility. As clothing plants and product line. In addition, some new plants arose sewing shops rapidly became the major industrial in more sophisticated branches. employers, local labor became largely dependent on these plants for employment. Other branches of industry, such as construction and food, also Arab Industrial Space experienced rapid growth rates, establishing re- gional markets in the national periphery. Two By the end of the second restructuring phase, firms even succeeded in competing in national Arab industry had infiltrated into most settle- markets with Jewish corporations, eventually ments with more than 5,000 inhabitants. Indus- joining the stock market. trial plants were found in some sixty Arab If not based on local and regional markets in settlements, the majority of which were located the periphery, the Arab industries that developed within the Galilee and the Little Triangle regions at that stage operated as subcontractors to Jew- (Schnell 1994). At the level of the individual ish-owned textile and food producers, with only settlement, five stand out as industrial centers, a few succeeding to challenge the large corpora- housing a relatively large number of factories. The tions. In 1983, Khamaisi (1984) counted 415 large number of plants in Nazareth (seventy- plants in Arab settlements. Only one-third of nine) and Umm el Fahm (fifty-two) stems from them employed more than ten workers, and the the status of these cities as the two largest Arab majority were not Arab-owned but were subsidi- centers in Israel. Baqa el Gharbiya, Tamra, and aries of Jewish-owned plants. More than 40 per- Yirka succeeded in using their locational advan- cent supplied construction material, woodworking, tage in the fringe of the Jewish cores to expand Arab Industrial Markets 317

Table 2. Selected Characteristics of Arab Plants in 1992 Economic Percentage Percentage of Average Percentage Age of Plants Branch of Plants Plants Organized Number of with Annual Sales as Registered Employees of + $150,000a Firmsa per Plant Food 19 1 5.8 8 Textile & clothing 26 28 36.7 37 Woodworking 17 6 5.5 15 Construction materials 17 29 10.2 35 Metals 8 4 6.2 11 Printing 5 0 3.8 4 Rubber & plastic 6 13 6.0 9 Others 2 17 20.0 17 Total 100 a All plants within branch taken as 100 percent. Source: Schnell et al. (1995). their markets to the surrounding Jewish vicinities Sales Linkages of Peripheral (Figure 2). The second phase of restructuring was also Ethnic Groups characterized by expansion into new markets. This became possible when Arab entrepreneurs In this paper, we investigate the sociospatial began to adopt the mechanisms for financial plan- patterns of sales linkages as they emerged during ning and marketing commonly employed in the the 1990s (second phase of restructuring) into a corporate capitalist system. Like other minorities, Jewish sector.In addition, the introduction of new Israeli-Arab entrepreneurs compete from an in- technology, better quality-control mechanisms, ferior position for their share in the marketing and responses to the changing pattern of demand chains. Their marginalization is also reflected in in the Jewish sector improved Arab competitive- their location in the national sociospatial periph- ness (Sofer et al. 1995). Falah’s (1993) study ery. Weargue that the theory of ethnic economies suggests that, as late as 1988, markets were still may best explain the formation of Israeli-Arab drawn mainly from local and neighboring Arab industrial linkages. But since Israeli-Arab entre- towns. Unfortunately, his nonexclusive catego- preneurs are forced to operate as a peripheral ries do not enable clear identification of the minority, theories of market linkages under the distribution of meaningful submarkets, although capitalist space economy may supplement that a significant number of plants seem to have explanation by bringing new insights to the un- started to develop more complex markets on a derstanding of their structures of opportunities. broader regional basis. This section analyzes the impact of ethnicity and Currently, a new phase of economic restruc- peripherality on the pattern of sales opportuni- turing is taking place in Israel, characterized by ties. Based on this analysis, we then construct a flexible or global production (Hagey and Malecki conceptual model of Arab markets in Israel. 1986; Storper and Scott 1989; Amin and Robins 1990; Digiovanna 1996). So far, its impact on the Arab economy in Israel is limited due to the The Structure of Ethnic Markets closure of about half the textile plants in Arab towns during the last two years and their reloca- The theory most relevant to ethnic economies tion in Jordan, Egypt, and the Palestinian author- appears to be that of ethnic entrepreneurship. ity. As a consequence, unemployment has The “ethnic enclave” version of this theory argues dramatically risen in Arab textile-oriented settle- that ethnic economies call for the development ments. At this stage, it is too early to foresee any of detached, self-supporting economies that generate new directions in Israeli-Arab industry. a variety of inputs and outputs within themselves. 318 Schnell et al.

Figure 2. Number of Arab-owned plants in the studied Arab settlements. Arab Industrial Markets 319

Profits and earnings are ploughed back into the Ethnic entrepreneurs may use this sense of soli- ethnic community, producing multiplier effects as darity to enlist production factors, such as labor, firms and earners buy from intraethnic suppliers capital, management, and markets, from more acces- (Waldinger 1993). Different studies have shown sible internal sources (Aldrich and Waldinger 1990). mixed evidence for the ethnic-enclave hypothe- With respect to ethnic barriers, following Jones sis. Some studies have concluded that enclave et al. (1992), we can identify four marketing economies do emerge and that they are beneficial categories according to the size of the markets’ to ethnic communities (Portes and Jensen 1989; hinterland (local and nonlocal) and to ethnic Jensen and Portes 1992; Zhou and Logan 1989). boundaries (intraethnic or Arab, and interethnic Other studies have questioned the benefits of or Arab-Jewish): limited and deprived enclave economies to ethnic . Local intraethnic markets. According to “ethnic communities (Nee and Sanders 1987; Sanders enclave theory” (Semyonov and Lewin-Ep- and Nee 1992). Studies of ethnic entrepreneur- stein 1993), local intraethnic markets may de- ship, however, rarely analyze the structural con- velop as a minority’s reaction to interethnic text in which ethnic industries develop (Barrett communication rifts and to marginalization et al. 1996). Aldrich and Waldinger (1990) sug- processes. Such markets rely on intraethnic gest a theoretical framework that incorporates resources, often reducing the risks inherent in structural aspects into a theory of ethnic econo- entrepreneurship. In line with this theory, local mies and entrepreneurship. They stress the im- intraethnic markets may provide the solid pact of three major factors on the degree and foundation necessary for ensuring the survival types of ethnic entrepreneurship. First, there is of the business and, by doing so, make it possi- the “opportunity structure” as formed in a histori- ble for entrepreneurs to take the calculated cal context and by political decisions. Forms of risks attendant upon penetration into new capitalist accumulation are an example of such a markets beyond the intraethnic system. factor, one that may structure selective opportu- . Local interethnic markets. Such markets may nities on both sides of the ethnic divide. Second, develop as a strategy for expanding beyond the access to enterprise ownership may channel eth- limited ethnic markets in the entrepreneurs’ nic groups either to low-reward enterprises or to vicinity (Ward 1985). This is achieved by con- a segregated ethnic economy, depending upon centrating chiefly on low-order firms unattrac- the degree of interethnic competition. Third, eth- tive to majority entrepreneurs. In this way nic-group characteristics may steer the group’s entrepreneurs can better compete due to the orientation toward entrepreneurship. absence of monopolistic competition. Thus Two ethnic forces, cultural and social, seem to they are able to reduce their risks while fighting affect ethnic entrepreneurs in their choice of to overcome the resistance of the more de- markets. From the cultural point of view, entre- manding, yet rewarding markets outside the preneurs on both sides of an ethnic divide tend ethnic enclave (Jones et al. 1993). Entrepre- to operate in different business cultures. There- neurs from ethnic minorities may also try to fore, members of the marginal group are typically reduce risks by operating as subcontractors for disadvantaged in interethnic markets because larger corporations owned by members of the they are forced to adapt to the dominant business majority (Roberts 1978, 1996). culture. This may result in mounting difficulties, . Nonlocal intraethnic markets. Such markets may which must be overcome in order to establish develop when ethnic barriers remain durable business connections among bodies on the two while economic opportunities grow within eth- sides of the ethnic divide (Camagni 1991; Ratti nic markets elsewhere. In this case, an autono- 1992). From the social point of view, members of mous ethnic economy may emerge, possibly a minority group may be marginalized and even including high-order firms and wholesalers excluded from certain markets as a result of ra- supplying that economy. In addition, entrepre- cism (Miles 1989) and the tendency of dominant neurs may use ethnic solidarity in order to groups to split and control lower-class workers create multiplier effects within the ethnic (Webber et al. 1991). In response, ethnic minori- economy, both for their own interests as well ties may enhance social solidarity—that is, a spirit as for their group’s workforce. of mutual trust, cooperation, and collective self- . Nonethnic nonlocal markets. These markets may help—as a facilitator of ethnic-enterprise devel- emerge when potential markets are unbounded opment (Light 1984; Light and Bonachich 1988). (Jones et al. 1993). In this case, entrepreneurs 320 Schnell et al.

may access any available market with no spa- tures in their surroundings. This strategy leads to tial or ethnic limitations, and thus achieve the opening of a large number of similar small higher integration within the larger economy. enterprises that make do with the low profits Ethnic economies have been studied, in most afforded by limited local markets (Czamanski and cases, in the context of immigrants who settled Taylor 1986). within the inner cities of large metropolitan cen- Once such entrepreneurs gain some en- ters in more developed countries. In contrast, trepreneurial experience and succeed in breaking Arab industry in Israel has had to face the chal- local barriers, their development routes may be lenges of entrepreneurship and market expansion channeled by the large corporations which domi- from the national periphery. Furthermore, Arabs nate capitalist production. Industries in the pe- are required to make efforts to integrate into the ripheral areas of corporate capitalist economies national economy from their position as an in- tend to expand into marketing chains in a clear digenous underdeveloped minority. Previous spatial division of functions. The first types in- studies have shown that Arab white-collar work- clude large plants characterized by labor-inten- ers and entrepreneurs gain status advantages sive mass production of inexpensive standardized within their Arab-sheltered economy. In con- products for national markets. Here, most sales trast, salaries in jobs within the Arab economy are directed to the sizeable markets located pri- remain somewhat lower than in interethnic labor marily in large metropolitan core areas. The sec- markets. In addition, several studies show that ond type includes small businesses existing Arab entrepreneurs tend to search for inter- alongside larger enterprises. These plants mainly ethnic economic networks (Semyonov and manufacture intermediate products which consti- Lewin-Epstein 1993; Schnell et al. 1995). These tute inputs for the larger enterprises in their regions, contradictory results, as well as the unique posi- or serve the demand created by the local end-users. tion of Israeli Arabs as a peripheral ethnic minor- Most products from these plants are thussold within ity, call for an analysis of the structural impacts of the peripheral region itself (Felsenstein 1992). peripherality on Arab sales markets. The literature contains an ongoing discussion of a more complex pattern of markets that may The Structure of Market Linkages of Firms appear in economies displaying a shift towards a in the Periphery flexible form of production and capital accumu- lation (Hagey and Malecki 1986; Storper and Location in the national sociospatial periphery Scott 1989; Amin and Robins 1990; Digiovanna may place an added economic burden on ethnic 1996). But these new developments, which have entrepreneurs. Within socioeconomic space, dis- hardly affected Israeli-Arab entrepreneurship, tance from large markets and complementary are beyond the scope of our analysis. economic activities upon which the functioning of the plant depends obviously reduces opportu- nities. Moreover, remoteness from economies of A Conceptual Model of Arab Markets scale, from information on market conditions, and from the business infrastructure dedicated to It would thus appear that ethnicity and evaluating opportunities may block growth op- peripherality may place cumulative burdens on portunities even further (Pred 1977; Van Geen- the processes of industrial growth and market huizen and Nijkamp 1995). Peripheral industries expansion (Schnell et al. 1995). Both factors tend found in the early stages of integration into a to channel sales towards a set of sociospatially capitalist economy tend to suffer from a lack of structured submarkets. Peripheral ethnic entre- risk-reducing mechanisms. As a consequence, preneurs, whose plants are in the initial stages of entrepreneurs find it almost impossible to take integration into capitalist systems, tend to sell risks necessary in competing with capital-inten- mainly to local intraethnic markets. In later sive corporations. In many cases, only govern- stages, after either ethnic or peripheral barriers ment intervention can create a risk-reducing are broken, they may expand into nonlocal, more entrepreneurial milieu (Grossman 1984). Given complex markets. While the discussion on ethnic the lack of risk-reducing institutions, entrepre- economies has emphasized the dichotomy be- neurs may adopt a mimicking behavior strategy— tween local and nonlocal markets, the discussion that is, they may tend to imitate successful ven- on peripherality subdivides nonlocal markets into Arab Industrial Markets 321 regional and national markets, either in the core research questions. First, into which of the nine or in the periphery, and international markets. theoretically deduced submarkets (Figure 3b) did These developments may take place in intra- Israeli-Arab entrepreneurs manage to expand in or interethnic spaces. When ethnic and periph- practice? Second, is it possible to distinguish eral barriers are difficult to overcome, plants may among types of enterprises according to the expand into regional spaces within the ethnic number of markets into which each of them ex- enclave and the national periphery. Regional panded, and the order of expansion into these markets may follow either the middle-person markets? Third, to what extent did entrepreneurs model (Ward 1985) or an integrative model. break ethnic and peripheral barriers, thus ena- Where peripheral barriers are breached, plants bling them to expand into interethnic and inter- may expand into national markets dominated by regional markets, and exploiting opportunities in sales to the national core. Where ethnic barriers an increasing number of sections of the Israeli are broken, interethnic markets may develop on economy? In answering these questions, we have regional, national, and international scales. adopted a methodology that makes use of the A schematic model of the possible markets of flexibility of GIS-based data analysis. We have peripheral ethnic minorities is offered in Figure avoided a deductive approach, which limits us to 3a. Two factors, the capitalist space economy and the consideration of a priori, theoretically de- ethnicity, determine a division of potential mar- duced hypotheses. Instead, the visualization kets into four sections, each subdivided into a methodology we suggest here may allow the rec- number of scales. In applying the general model ognition of new sales patterns and the identifica- to the case of Arab industry in Israel (Figure 3b), tion of new explanatory factors. several patterns can be recognized. Historically, Israeli Arabs have relied on mimicking strategies and local intraethnic markets. It is only since the Sample 1980s that an increasing number of Arab enter- prises have begun to reach out to new, more A sample of Arab settlements and enterprises demanding, and riskier markets. At present, the was surveyed in 1992 within the context of an mode of industrial growth and the newly emerg- extensive study of Arab industry and industrial ing markets are determined by two forces, each of enterpreneurship in Israel (Schnell et al. 1995). them associated with specific spatial patterns: An Arab enterprise was defined as any plant, first, ethnicity may divide space into Arab versus directly owned by Arabs, that acted as a produc- Jewish markets; and second, the capitalist space tion unit employing at least three workers. Of the economy may divide into core versus peripheral 900 Arab-owned enterprises operating in 1992, regions. Each of the peripheral and core markets the managers and owners of 514 plants (57 per- may be subdivided into growing ranges of submar- cent of the total) were interviewed. These re- kets (Figure 3a). Some of the hypothetical mar- spondents were located in thirty-five of the kets, however, are irrelevant for Arab industry in sixty-one settlements having industrial plants. Israel, where all local markets are Arab, and all This included 80 percent of the settlements in the core markets are Jewish by definition. In addition, mountainous Galilee and the Little Triangle re- all the Arab settlements’ home regions are lo- gions (Figure 1). Settlements in other areas, and cated in the national periphery. Therefore, the several settlements in the Galilee and the Little application of the general model to the specific Triangle with less than seven plants each, were case of Arab markets in Israel produces nine excluded from the sample because industry was possible markets (Figure 3b). We now examine marginal to their economy. In most of the thirty- which of the hypothesized routes of market ex- five settlements all the plants were surveyed, pansion Israeli-Arab industrial entrepreneurs except in the four largest ones, i.e., Nazareth, have actually followed since the 1980s. Shefaram, Taiyibe, and Um el Fahm, where we conducted a random sample. In Nazareth, which contains the largest amount of plants, the survey Research Methods covered 25 percent of the total, while in the other three settlements 70 percent of the plants were Our analysis of the pattern of Arab industry in included in the sample. For the aggregated analy- Israel decomposing it into subpatterns along eth- ses, the data for these settlements were weighted nic and spatial economic dimensions raises three by a factor determined by the size of the sample. 322 Schnell et al.

Figure 3. A schematic model of the theoretically deduced market patterns: a. the general model considering the effect of space economic and ethnic structures of the market; b. the specific case of Arab industrial markets. Arab Industrial Markets 323

The survey was comprehensive, including data ad hoc factor(s) that can influence the pattern of on the origin of inputs, the destination of outputs, sale links is (are) hypothesized. Second, the links and related characteristics such as sector and that belong to an inscrutable part of the sale product line (Schnell et al. 1995). relations are tabulated according to the factors’ classes. Third, if any shared meaningful pattern is recognized in the cells of the same row or column Data Analysis of a table, it is extracted. Fourth, a statistical analysis is performed on the extracted pattern, in The data were analyzed in two stages, each of order to further analyze its structure. The next which responds to one research question. First, step of the recursion proceeds with the residual the pattern of all sales from all the settlements set of links. The analysis can reach a dead end if, was decomposed (broken down) into a number of at some step of the recursion, no common pattern subpatterns, each corresponding to a common is identified for the selected factor(s). In such a type of destination (e.g., metropolitan cores). situation, the process can be restarted from one Each subpattern was associated with a different of the previous steps, with (a) new factor(s) and market. Second, groups of plants, participating in a different path followed. This approach is em- common configurations of submarkets, were ana- ployed below to decompose the pattern of sales lyzed in order to investigate the entrepreneurial linkages identified in our sample into a number of routes of expansion and subtraction of markets. simpler components. In the final part of the investigation, we analyzed At the first stage of the analysis, we identified the relative impact of the two structural five subpatterns associated with each market. forces—namely, ethnicity and space economy— The analysis at the second stage is based on these on the emerging pattern. results. The basic unit of analysis at this stage The first stage of decomposition seeks to over- becomes a vector that represents a plant’s partici- come the fundamental problems of hypothesis pation in these markets. We call this vector a formation encountered in interpreting a complex “plant’s market profile.” The profile is a Boolean structure of industrial linkage patterns. The de- vector with the number of components equaling composition was performed with a GIS-based the number of submarkets discerned, and each methodology. The application of ArcCAD GIS, component designating expansion into a certain designed by the authors, allows an interactive market. To understand the evolution of the indi- recurrent tabulation of the industrial linkages and vidual plants within the set of markets, as well as presentation of results as a “table of maps” the development of the markets themselves, we (Benenson et al. 1996, 1998). The decomposition use Partial Ordinal Scalogram Analysis (POSA) process is similar to conventional methods of (Guttman 1968). The conclusions concerning cross-tabulation and residual analysis. The basic market development are based on the assumption unit of analysis is a sales link established between that a decision to enter or to withdraw from a the settlement of origin and the settlement of market is made by the entrepreneur in a prestruc- destination. What differentiates ours from the tured milieu. Therefore it is highly feasible that conventional approach to cross-tabulation is how such decisions are repetitive and follow the exist- the units are classified and the manner in which ing structure of markets. POSA unravels com- the set of observations (links) that fall into each mon paths of market entry and withdrawal. It cell of a “table of links” are exhibited and charac- operates with a graph of “market relations” on terized. When classifying numerical observations, which the nodes correspond to profiles and are we characterize the cell data by their mean, vari- arranged in descending order according to the ance, row/column/cell frequency, etc. When we number of markets in which the plants partici- classify links, the links of a table cell constitute a pate. The lowest level consists of nodes corre- specific linkage subpattern that can be represented sponding to one-market profiles, the preceding on a map. Instead of comparing cells’ statistics by one of two-market profiles, etc. The edges of a means of standard statistical methods, we rely on graph connect nodes of adjacent levels only; two the flexibilityofhumanvisualinterpretationofmaps nodes are connected if the profile on the upper to discern the patterns in the cells. level includes all markets on the lower level. The The overall pattern of industrial sales links is aim of POSA is to construct a “scalogram,” that decomposed in the recursive procedure shown in is, to represent a graph of market relations in a Figure 4. First, at each step of the recursion, (an) planar form. 324 Schnell et al.

start the analysis from a map that presents the overall pattern of industrial sales from Israeli- Arab-owned plants (Figure 5). It is worth noting here that links within settlements have zero length at the chosen scale and, thus, are repre- sented on the map as points. The initial map is too complex to be visually interpreted, and thus requires decomposition into simpler submarkets. In the decomposition, we investigate how many submarkets Israeli-Arab enterprises actually participate in out of the nine hypothetical markets derived by the theoretical operationalization of ethnicity and peripherality (Figure 3b). Weconclude the decomposition pro- cedure with five recursions, corresponding to the five actualized markets plus a few residual sales links. Figure 6 summarizes the investigation of market patterns. While the detailed description of each recursion is described later, it may be concluded here that four patterns of linkages describe 95 percent of all the sales destinations. An additional 3 percent is directed towards inter- regional destinations, and the other four possible markets attract the remaining 2 percent. Figure 4. A flow chart describing steps in the analysis Weturn now to each step of the decomposition of spatial network patterns. recursion. As described above, each step involves cross-tabulation of the linkages according to ad In general, the question of whether a scalo- hoc hypothesized factors. At the first stage, using gram (i.e., planar presentation) can be con- the ArcCAD application, we test a number of structed for a given graph is a complicated factors such as age of the plant, its location, and mathematical problem (Harary 1969). The graph distance from metropolitan centers. The first se- of market relations we analyze in this paper (i.e., lected pair of factors, which entails a coherent Arab plants) cannot be represented in such a pattern in the cells of a classification table, con- fashion. For this more complex situation, we con- sists of industrial branch and firm size (measured sider the “most planar” presentation of a graph of by volume of sales). The choice of these factors is relations, that is, we arrange the nodes in such a based on the common-sense hypothesis that way that the number of intersecting edges is larger plants have better opportunities to expand minimized. In consequence, we are able to obtain into wider markets outside their settlements, and a representation of the graph of market relations that the chosen markets may be dependent on that is very close to planar. The resulting ex- product characteristics. In the resulting table of tended scalogram displays the expansion or with- linkage patterns identified at stage 1 (Figure 7), drawal of individual plants from the respective the rows correspond to industrial branch and the markets (Lingoes 1973). Based on the scalogram, columns to three categories of annual sales vol- we can conclude the second stage of the investi- ume: (1) < $150,000, (2) $150,000–750,000, and gation with an analysis of the plants’ break- (3) > $750,000. In this and the following figures, throughs into interethnic and interregional the link is expressed by a line connecting the markets. plants’ 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 sales Decomposition of Sales volume at the destination. Linkages Patterns Visual analysis and comparison of linkage pat- terns in the first step of the decomposition recur- The goal of this section is to unravel the mar- sion (Figure 7) yields coherent patterns in all kets that Israeli-Arab enterprises are utilizing. We three cells of the textiles and clothing branch Arab Industrial Markets 325

Figure 5. The spatial distribution of all sales linkages. The map emphasizes the complexity of the distribution to a degree that no clear pattern can be identified. 326 Schnell et al.

Figure 6. Decomposition of the sales linkages into the five major Arab submarkets and the distribution of sales among these markets (%). Arab Industrial Markets 327

(Figure 7, upper row). All three subgraphs, re- excluding the sales links to the destinations of Tel gardless of plant size, follow the same basic pattern Aviv, Haifa, Jerusalem, and overseas from the distinguished by sales to the Jewish-dominated overall pattern presented in Figure 5. By tabulat- metropolitan areas of Tel Aviv and Haifa, and ing links of the residual pattern against various ad overseas. This can be explained by the fact that hoc factors, the trend of sales to adjacent Jewish most Arab-owned textile and clothing plants op- regional centers and their hinterlands becomes erate as subcontractors for large Jewish-owned visually more evident (Figure 6c). This is espe- companies in these metropolitan areas. Even cially apparent when links are tabulated accord- larger plants have failed to free themselves from ing to two factors: a two-class factor termed Jewish corporations in order to develop inde- “ethnicity of the customer” (Jewish or Arab); and pendent markets. The significance of the afore- sales volume, divided according to the same three mentioned pattern is demonstrated by the rate of categories employed above. Twenty-one Jewish sales to the Tel Aviv and Haifa metropolitan towns, of which seven were particularly dominant cores, to Jerusalem, and to destinations abroad, (the towns of Tiberias, Afula, Nahariya, Akko, which accounts for 89.9 percent of the total sales Hadera, Netanya, and the towns of the Sharon volume of this branch. But two other observations represented on Figure 5 by Kefar Saba) were can be read regarding this industry. First, an found to purchase 18 percent of all plant produc- increase in the size of the industrial operation, as tion in the four major branches. As visually rep- identified by the volume of sales, is accompanied resented, most of these sales are directed to by an increase in the percentage of exported adjacent towns and their vicinity. Moreover, output. Second, as the size of the industrial op- neighboring Arab plants seem to be grouped by a eration grows, Haifa diminishes sharply in impor- common sales destination to Jewish towns. This tance, leaving Tel Aviv and overseas as the two finding was further studied by verifying the clus- principal destinations. Wemay conclude that tex- ters of Arab plants according to a predesignated tile subcontractors hardly contribute to local and set of Jewish customers. regional markets while they remain obligated to The cluster analysis was performed at the set- produce for corporations in the Jewish national core. tlement level by merging the sales of plants lo- Smaller and medium-size plants in the wood- cated in each. A settlement was then working and food branches do not display a clear characterized by a vector demonstrating the vol- sales pattern (Figure 7, middle rows), but in the ume of sales of its plants to customers in Jewish case of the larger plants there appears to be a towns. The number of total components of this pronounced trend of sales to Jewish metropolitan vector was equal to the number of destination areas. Viewed separately, food industry factories settlements, i.e., 21. Each component repre- with large sales volumes have high-intensity links sented the flow of sales of all plants in a given with the Tel Aviv metropolitan area, whereas for settlement to a specific destination. In order to the woodworking industry the stronger links are reveal the clusters, we proceeded with the with the Haifa metropolitan area. Therefore, the SPSS/PC statistical package clustering procedure aspect identified in the first recursion step by a with a ϕ2 measure of proximity between the two visual inspection of Figure 7 is the existence of a sales vectors (Norcliffe 1977). Six clusters of Arab sales pattern defined by Jewish customers located settlements emerged from the analysis. They rep- in the metropolitan areas (as emphasized by Fig- resent six compact regions of Arab settlements, ure 6b). This is also characteristic of textiles and each of which is composed mainly of neighboring clothing enterprises. These sales to the Jewish settlements, the sole exception being Maghar, core account for 27 percent of the total sales of which belongs to the region of Nazareth instead Arab industry in Israel. of Saknin. The plants located in the settlements of The remaining maps in Figure 7 present more a given cluster sell to customers in the same Jewish complex patterns that call for a second step of towns. For example, the enterprises in the region decomposition recursion. Some hints for a new consisting of Yirka, Kafar Yasif, Judeida-Makr, and pattern may be seen in the sales of construction Julis in the Western Galilee, sell most of their material plants (Figure 7, lower row), the second products to the adjacent Jewish towns of Akko largest branch in the Arab industrial sector. This and Nahariya. In the same manner, the plants new pattern is characterized by sales to Jewish located in the settlements of the Little Triangle towns. Proceeding to the second recursion step, sell most of their products to their Jewish neigh- we analyze only the residual pattern obtained by boring towns of Hadera, Netanya, Kefar Sava, 328 Schnell et al.

Figure 7. The spatial distribution of sales linkages of plants by major branches and sales volume in dollars. Arab Industrial Markets 329 and Petah Tiqwa. The analysis of the second they had already expanded into five of the nine recursion exposes an interethnic market arranged possible markets. Although half of the linkages around six Arab regional settlement systems sell- are still within intraethnic local and regional mar- ing to Jewish markets within their home regions. kets, this major part of the remaining linkages (45 These sales amount to 18 percent of the total. percent) indicates a preference for expanding In the third step of decomposition recursion, into interethnic markets instead of expanding we explore the sales pattern obtained after the into Arab markets in Israel and the Palestinian links to Jewish metropolitan cores and to Jewish authority. neighboring towns are extracted. The residual pattern consists of links among and within Arab settlements. The pattern of links within settle- Plant Participation in the ments is quite significant, accounting for some 25 Different Markets percent of total sales (Figure 6d). After being extracted, the residual sales are expanded in the In this section, we analyze the configuration of fourth recursion into links between the Galilee participation in the five different markets identi- and the Little Triangle (Figure 6f), and sales fied in the former section, and the order in which within each of these two regions of Arab industry entrepreneurs add or subtract markets. Unlike (Figure 6e). Interregional intraethnic sales be- the above analysis, in which the basic unit was a tween Arab regions comprise about 3 percent of sales link, in this section, we focus on the plant total sales, 85 percent of which are from the Little as the basic unit of analysis and ask what types of Triangle to the Galilee, with only 15 percent in market configurations different plants create for the opposite direction. Most of these intraethnic themselves. A number of suggestions may be interregional linkages exist among the larger set- formulated regarding the order in which a given tlements, particularly Umm el Fahm and Baqa el plant adds or subtracts each of the five actual Gharbiya in the Little Triangle,both of which sell markets identified in the analysis. It may be hy- to several towns in the Galilee. The regional pothesized that smaller and younger plants par- factor further divided the residual network into ticipate mainly in local markets, being more two regional markets: the Galilee in the north and vulnerable to structural barriers, while larger the Little Triangle in the south. These intraethnic plants participate in a greater number of broader regional markets add 25 percent to the total sales markets because they are more successful in (Figure 6e). We halted the analysis at this stage breaking interregional and interethnic barriers. because we could not discern, either visually or These and similar hypotheses are tested and the with the help of cluster analysis, any pronounced association between plant turnover and the form patterns of sales within these two regions. of participation in the respective markets is analyzed. At this point, it could be concluded that, of the Each plant in the POSA is characterized by a nine theoretically deduced patterns suggested by “participation profile,” which depicts participa- Figure 3b, five were actually identified in Arab tion in the five markets differentiated above. We industry in Israel (Figure 6). The most frequent present the results of the POSA in two scalo- are sales to Jewish metropolitan core areas, then grams, one for textiles and clothing-market ex- to intraregional and intrasettlement markets, fol- pansion alone and one for the other branches. lowed by Jewish markets in neighboring regions. The reason is that textiles and clothing firms, One market (interregional, intraethnic) re- unlike other branches, are highly dependent on mained only marginal, with a mere 3 percent of links to the national core. While the scalogram total sales. The last three markets indicated by for textiles and clothing is simple and planar Figure 3a (Palestinian territories, Jewish settle- (Figure 8), that for the other branches is complex, ments in Palestinian territories, and distant Jew- although approaching a planar form. We suc- ish regions) remained insignificant, accounting ceeded in arranging 91 percent of the plants in a altogether for only 2 percent of the sales linkages planar order, or 99 percent in the close-to-planar (Figure 6g). order, with only three pairs of edges intersecting The major conclusion to be drawn from the (Figure 9). analysis in this section is that since the 1970s and The number of all possible participation pro- even more since the 1980s, Arab plants have files for plants with five potential markets equals succeeded in expanding into new markets beyond 25 –1 or 31. In practice, twenty forms of partici- the local ones previously penetrated. By 1992, pation profiles were identified, with two thirds of 330 Schnell et al. the plants characterized by only four profiles. This kets, which are exclusively Arab (profiles 0000S means that most Arab plants in Israel expand into and 000HS), twenty-five plants fail to break eth- those markets in a few well-structured ways. The nic barriers even when they expand into a third most frequent profile, presented in Figure 9, rep- market. Instead, they restrict themselves to Arab resents 112 plants that sell to customers within markets in their home settlements, region, and both the settlement and the home regional mar- other Arab regions (profile 00AHS). The last ket (000HS, n=112). The second most frequent trend, characterizing up to 20 plants, refers to profile, which differs from the first by adding the those that concentrate on metropolitan markets: neighboring Jewish markets to the two former M0000, M0A00, M0A0S, MJA0S, MJAHS markets, is practiced by eighty-eight plants (Figure 9, gray continuous line). (0J0HS, n=88). The planar scalogram for tex- The association between the number of mar- tilesandthenear-planaronefortheother kets in which a plant participates and its size in branches highlight five (nonexclusive) structured terms of turnover is relatively weak. For branches trends of market expansion and withdrawal. They other than textiles and clothing, the average turn- are represented in Figures 8 and 9 by arrows of over of the plants that participate in only one different shapes and intensity. The first trend market is significantly lower,and for those partici- characterizes the textiles and clothing industry pating in five markets is significantly higher, than (sixty-two plants). Seventy percent of these en- for the plants on the three intermediate levels terprises, including the larger plants that act as (Figure 9, ANOVA with Schaffe pairwise com- subcontractors for large corporations in Israel, sell parisons at 5 percent significance level). For the only to metropolitan markets (Figure 8, profile textiles and clothing industry, the situation is M0000). No other profile dominates textile plants’ reversed. The plants that participate in only one market configuration. market (selling to the metropolitan cores) are For the other branches, the form of participa- larger than the others (Figure 8), but the differ- tion ranges between expansion to more distant ences are not significant. Thus, except for the markets and narrow sales to markets in the plant’s extreme categories, the ability to expand into a vicinity (Figure 9, broad continuous line). The new market does not seem to depend on a plant’s simplest form of participation concentrates on turnover. Cross-tabulation of plants according to local markets within the settlement (0000S). size and the number of markets in which they χ2 The pattern reveals that new markets are added participate yields =20.4 with df=20, corre- ≅ in the following order: home regional markets sponding to p 0.4. It would appear, therefore, (000HS); either Jewish neighboring markets that even small plants have a good chance of (0J0HS) or metropolitan markets (M00HS); the successfully expanding into any of the five mar- two remaining markets (MJ0HS); and finally par- kets in which Arab enterprises are already in- ticipation in all five markets (MJAHS-profile). volved, including distant and interethnic ones, All told, 328 plants participate in profiles follow- thus proving the ability of this sector to break the ing this most dominant trend, although some also structural barriers in terms of sales. show additional patterns of participation. Profiles of the second most-dominant trend (Figure 9, broad fragmented line) apply to 209 Structural Forces as plants. These enterprises start by selling to the Market Barriers Jewish sector in neighboring Jewish regions, the metropolitan cores, or both (0J000, M0000, The relative impact of each of the two barriers, MJ000). Once Jewish markets are chosen as des- peripherality and ethnicity, on the expansion of tinations, entrepreneurs return to local Arab sales linkages may be deduced from the deci- markets (M000S, 00J0S, MJ00S) and then ex- sions taken by entrepreneurs when choosing pand to distant Arab markets (MJ0HS) and fi- their markets. Table 3 shows the percentage of nally to all five markets (MJAHS). enterprises in all branches, excluding textiles and The plants that expand according to the third clothing, that has overcome any of these two most frequent trend (profiles applying to 185 barriers by the number of markets into which the plants) restrict themselves to Arab intraethnic enterprise has expanded. To construct this table, markets before turning to Jewish markets (Figure we determined that a plant would be said to have 9, gray discontinuous line). In addition to those broken the barrier of ethnicity when neighboring plants that sell to local and home regional mar- Jewish (J) or metropolitan (M) markets were Arab Industrial Markets 331

Figure 8. Scalogram describing the planar order of market expansion and withdrawal of textiles and clothing plants. utilized, and the barrier of the peripherality when Jewish markets, while about half still do not sell the plant sold to metropolitan (M) markets. to the metropolitan cores or to markets beyond Table3 indicates that as soon as plants partici- their home regions. Thus, the barrier of peripher- pate in two markets the ethnic barrier is broken ality (location in social and geographic space) by almost one third, while the barrier of peripher- appears to be more salient to market expansion ality is overcome by only 18 percent. When plants than ethnicity. Regarding peripherality, Arab en- expand into their third market, the ethnic barrier trepreneurs are channeled into markets in their falls and almost all these enterprises have links with own vicinity within the national periphery, or into 332 Schnell et al.

Figure 9. Scalogram describing the planar order of market expansion and withdrawal of all branches except textiles and clothing. metropolitan cores as subcontractors, especially is significantly lower than might be anticipated in the case of textiles and clothing. With regard according to a gravity model that assumes a to ethnicity, the analysis shows that Arab entre- boundless market space. preneurs enjoy a good chance of expanding into These findings concerning the dominant im- Jewish markets, and some do so even in the early pact of peripherality on the pattern of the sales stages of their development. Arab industry, how- network were further confirmed in interviews ever, does not entirely acquire the advantage of with a sample of seventy entrepreneurs. Most sharing in Jewish markets. As shown by Schnell stressed three major points: the fact that ethnic (1998), the volume of sales to Jewish markets barriers impede Arab entrepreneurship; the Arab Industrial Markets 333

Table 3. Barriers Overcome by Plants through Some entrepreneurs originally opened their Market Expansion plants with the intention of reaching Jewish mar- a kets. One furniture manufacturer from a settle- Number of Markets Barriers Overcome ment near Tel Aviv even hired a Jewish designer Entered Ethnicity Peripherality and secretary on the assumption that they would 1198be better able to communicate with and under- 23118stand the tastes of Jewish clients. The textiles and 39643clothing plants, on the other hand, display differ- 4 100 100 ent models of market expansion. One typical 5 100 100 example is an entrepreneur from Kafar Manda in aby percentage of plants in survey. the lower Galilee: First I worked as a driver. I drove the [women] to feeling that once barriers are broken and Arab the Delta factory [the production unit of a large entrepreneurs develop their reputation on the Jewish-owned parent company in a neighboring one hand, and learn to operate in the Jewish Jewish town]. Later I opened a sewing shop in my business milieu on the other, they are treated home as a subcontractor for Delta. Today I work for everyone—for stores in the village, for Nazareth and fairly in the market; and strong optimism as to for businesses in Tel Aviv. I have even started to their ability to overcome these market barriers. export. When you are reliable and do a good job, Many of those who succeeded in expanding into people get to know you and you get a lot of work. wider markets added that once barriers were bro- We, the Arabs, have to be better and cheaper in ken and they learned to adapt to Jewish business order to succeed, but if you do a good job, you can practices and modern market requirements they make it. did not experience any disadvantages. It also appears that the ability to break ethnic This example demonstrates how subcontract- barriers is highly dependent on entrepreneurs’ ing has the potential to support entrepreneurship worldviews. One older, less-educated entrepre- and enable enterprises to expand into new mar- neur expressed a pessimistic attitude: kets. Thus far, none of the Arab subcontractors has succeeded in becoming independent, but this Jews refuse to buy concrete blocks from an Arab trend offers hope that the breakthrough will take industrialist because they want to give business to place in the foreseeable future. Jews, not to Arabs. I sell high quality products at In addition, younger and more educated entre- cheaper prices, but I don’t get Jewish customers. . . . preneurs seem better prepared to operate in the I have not applied for the seal of the Israeli Bureau complex milieu of a modern interethnic econ- of Standards since my customers in the village know omy, and many have succeeded in breaking the quality of my products and Jewish customers won’t buy from me in any case. through these barriers. The most difficult impedi- ment, however, which few Arab entrepreneurs In contrast, many other entrepreneurs, typi- have managed to overcome, is the need to com- cally younger and/or more highly educated (high pete against large corporations. Yet resourceful- school education and above), seem to better un- ness, perseverance, judicious exploitation of derstand the Israeli business milieu existing be- relative advantages, and skill in the art of nego- yond their home region, and make a special effort tiation all served the owner of a pita-bread bakery to reach Jewish markets, as explained by one such in a settlement in the Eastern Galilee when he entrepreneur: was forced to compete against a large bakery that dominated the regional market: A relative from my extended family is a building contractor who works for Jewish customers in the It was hard to compete against the bakery’s monop- new towns and villages in the Galilee. I asked him oly because they forced customers to buy their pita to buy the materials for the houses he builds from if they wanted their bread. Our pita is better, we my plant. I promised his clients attractive prices and supply it twice a day instead of once, we give credit short delivery time. The latest tendency among Jews and we have personal contacts with our customers. in new towns in the national periphery to build their We were forced to buy bread in Haifa in order to own homes has given small plants like mine a good fight the monopoly. Today we have an agreement opportunity to compete for these markets. with the large bakery. They sell the bread and we 334 Schnell et al.

bought the right to use their marketing system to sell lyzed the macrolevel organizing structure based our pita. on entrepreneurial decisions regarding expansion Such interviews lend support to our conclusion into or withdrawal from particular markets. Our investigation revealed the behavior of an that Jewish markets may be open to Arab firms as industry that is still highly disadvantaged and long as they do not threaten the broader markets distanced from opportunities and resources. Nev- dominated by large corporations. When the in- ertheless, Arab industry in Israel has been under- terests of large corporations are threatened, Arab going a restructuring process since the 1970s. entrepreneurs, who are marginalized from the Arab entrepreneurs are abandoning their tradi- political and economic elite, lack the necessary tional mimicking strategy and beginning to en- resources to compete with the monopolies. Their gage in more competitive participation in the only advantages are their strong determination, economy. This study showed that in their search flexibility in serving customers, and willingness to for wider markets Arab entrepreneurs have chan- settle for lower profits. neled sales to at least five different markets and opened marginal ties with the other four. Even smaller enterprises have shown considerable Conclusions flexibility in choosing a form of participation in markets, including sales to distant and in- This paper offers a two-stage methodology for terethnic markets. Plants have utilized twenty of the understanding of industrial sales patterns as the thirty-one possible forms of participation in representing sociospatial relations and their im- the market, expanding into a variety of new mar- pact on entrepreneurship. In the first stage, we kets, an indication that Arab entrepreneurs who decompose the overall pattern of industrial link- perceive the barriers of ethnicity and peripheral- ages into a number of patterns relating to different ity as being surmountable are adopting a new markets. The process of decomposition is based competitive strategy. These findings are consis- on the technological advantage of GIS in simul- tent with those obtained in our previous study, in taneously processing large amounts of both geo- which the analysis of entrepreneurial decisions graphical and numerical information. The revealed highly determined entrepreneurs willing identification of a common pattern takes advan- to take risks and to make personal sacrifices in tage of the flexibility of human visual capacities order to exploit any available opportunity in discerning complex images. This stage provides (Schnell et al. 1995). us with the appropriate decomposition of an over- The proposed model is representative of indus- all set of sales linkages into a number of sales tries in deprived regions of the national periphery patterns, each one generated by a given market. of economies dominated by large corporations. In the second stage, we analyze the forms of According to the theories discussed above, indus- plant participation in the markets identified in tries located in national peripheries of corporate the first stage and the trends of expansion into, systems tend to develop two kinds of markets. or withdrawal from, those markets. This is done Smaller plants tend to concentrate on regional by investigating the graph of the relationships markets in the periphery, selling to end-users and between the plants’ market profiles. The planar adjacent larger production units. Larger plants, or close-to-planar presentation of the graph re- usually owned by major corporations, tend to veals that routes of expansion or withdrawal from channel their products to the main national and markets are highly structured and therefore pre- international markets concentrated around the dictable. This analysis makes it possible to study metropolitan cores. In our study, the majority of the impact of peripherality and ethnicity, all the Arab enterprises indeed channeled their produc- while keeping in mind that they operate simulta- tion to regional markets located in the periphery. neously. One-third of the plants, almost exclusively in the In addition to its flexibility, this methodology textile and clothing industry regardless of size, has the potential to close the gap between micro- sold to the metropolitan cores, but only as sub- and macrostudies concerning the relations be- contractors. The small number of more intensive tween entrepreneurship and regional and/or linkages with distant markets is a result of the sectoral development (Markusen 1994). In this disadvantaged status of Arab industry in Israel. investigation, we decomposed the sales patterns Government policy allocates industrial parks and of individual plant sales linkages, and then ana- subsidies mainly to new Jewish towns, in some Arab Industrial Markets 335 cases in the vicinity of Arab settlements. There- proven successful in exploiting even narrow win- fore, large corporations have no incentive to in- dows of opportunities (in our case, opening new vest in the development of production units in markets) as a means for socioeconomic mobility. Arab towns (Bar-El 1993). Smaller local enter- prises, like most Arab-owned plants (with very few exceptions), are incapable of competing References against the strategies employed by monopolistic corporations whenever their status is threatened. 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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).