About two years ago, shoe and sandal manufacturer Teva-Naot of Kibbutz Naot Maordechai in the upper Galilee, was in difficult financial straits. You could blame a weak market, or perhaps they were out of date. In any case, the facts were that there was a management crisis, a change in personnel and the company now believes it is back on track.
Over the past year and a half, Michael Illouz, a resident of development town Shlomi in the upper Galilee, has served as general manager. "There was a crisis within the company but that has passed," he points out quickly. "We've changed our emphasis from sales to the local market to focusing on export. In 1997 we reached the balancing point. In 1998 the upswing began. This year, exports became dominant - about 80% of our total sales."
What's so special about Teva-Naot shoes?
"The company was started in 1946 as a shoe repair shop which also manufactured shoes. In 1986, after a study done by the kibbutz together with market researcher POC, the decision was made to enter the industry focusing on a particular niche - comfort. That's how our comfort sole was born, which is a semi-orthopedic sole with certain shock absorbing characteristics that assist the back and heel. When you walk, the pressure on your heel is 1.5 times your body weight. When you go down stairs the pressure is 2 to 3 times body weight. When you run - forget it."
Do consumers like comfort shoes?
"Our use of natural materials fits with the nature and health trend. The problem is that due to trade opening up to the international market, many cheap, low-quality imitations of our products have entered Israel. This has hurt our products and our good name."
What has changed in shoe consumption habits?
"The local shoe market declined and mass importation began. The market opened up to competition and we did not received preferential status. Also, our export activity was not on time. Today, all shoe manufacturers must export in order to survive. The closure of (shoe manufacturer) Gali also caused serious shock waves throughout our sector. "
And what changed at your company?
"We built up a brand name. Despite the financial difficulty, last year we advertised on TV in order to reinforce our brand name. We are building a strategic marketing plan. We've hired the services of an international marketing consultant who works in Europe and will try to strengthen the brand name abroad. This year we're producing catalogues for both Israel and the international market. We're plan to cultivate our points of sale."
How is it to work with kibbutz members
"It was hard to change their attitude towards business. One day, there was a power outage and the factory shut down. I immediately turned to the kibbutz manager. He didn't understand what I wanted from him. He said a notice had been posted in the communal dining hall stating that there would be a scheduled power outage. I told him that Teva-Naot did not work in the dining hall and we would have to be notified separately."
Why didn't they hire a general manager from kibbutz?
"They understood that management skill must be judged objectively and that the kibbutz general meeting is not qualified to decide on a manager. This is a business. I do give hiring preference to kibbutz members, so long as they meet professional standards. By the way, the kibbutz has been completely privatized."
Who are Teva-Naot's main rivals?
"There are counterfeiters all over the Territories. They manufacture in Hebron and distribute in Israel."
Are you copied abroad?
"Abroad, they go head to head with us. They see what our leading model is and copy it, one to one. It's hard, because they can manufacture there at more competitive prices.
Why do you continue to manufacture in Israel, when manufacturing costs in neighboring countries and the Far East are so much lower?
"We're profitable. We made a strategic decision to go with local manufacturing. We are the central exporter in our field and insist on using Israeli labor. I could go to China and profit more. But I want to stay a Zionist and provide employment in Israel. Maybe it doesn't sound modern but those are the facts."
The world leader in your field is Birkenstock. How do you compete with them?
"Last year, we succeeded in creating a new, state of the art sole. We also launched replaceable soles. Birkenstock doesn't have anything like that. In this way, we've started real competition."
Why don't you set up a chain of stores?
"We may set up a chain of comfort shoe shops, which would provide Israelis with a full range of Teva-Naot products and other international brands. We're currently developing the concept. We will invest NIS1 million in foot care products development. We'll manufacture socks, lotions and more. I think there's a place in Israel for five to ten of such stores."
Published by Israel's Business Arena on December 23, 1999.