Over the years, many Israeli companies have transferred part of their activities overseas, in order to save costs or to be closer to their target markets. Workers in East Asia, for example, have always been cheaper than Israeli workers. In its 2025 report, thermoplastics company Polyram (TASE: POLP) announced the opening of a new factory in Thailand and the transfer of some production lines from Israel. “These steps indicate a change in the center of the company’s business activity,” it stated.
Another company to have transferred production oversea is Caesarstone (Nasdaq: CSTE), the manufacturer of kitchen and bathroom surfaces from Kibbutz Sdot Yam. Because of a crisis in its business and a slide in its share price, Caesarstone has in recent years closed factories in Israel, laid off hundreds of workers, and transferred production to global sub-contractors in the East.
The financials released last week by water meter systems company Arad (TASE: ARD), controlled by kibbutzim Dalia and Ramot Menashe, indicate another factor that could lead to export-oriented industrial companies to transfer activity overseas: the continued strengthening of the shekel against the US dollar. When sales are denominated in dollars and wages are in shekels, profits are squeezed and production in Israel becomes more expensive.
Arad, which develops and produces computerized systems for remote reading of water meters, and is traded on the Tel Aviv Stock Exchange with a market cap of NIS 1.2 billion, reported that it had taken a number of steps that reduced the impact of the appreciation of the shekel on its financial results. Among them are the transfer of production for the European market from Israel to sites in Spain and Italy, and the transfer of production for the US market to the group’s site in Mexico.
Thanks to these moves (and to continued growth in revenue from the local Israeli market), and despite the 20% appreciation of the shekel against the dollar in the past year, Arad’s first quarter revenue grew by 8% to $112.4 million and its profit jumped 26% to $9.2 million. “As a result of all the abovementioned measures, and despite the significant appreciation of the shekel against the dollar… there was no negative impact on operating profit in the first quarter of the year,” the company stated.
Arad CEO Gabi Yankovitz told “Globes” that the issue of transferring production activity out of Israel “arose in our conversations with investors, particularly in the past month, as the appreciation of the shekel gained strong momentum and we reached an exchange rate of 2.9 shekels to the dollar. We started transferring production activity to Europe two years ago, including the transfer of know-how to technical people in the overseas subsidiaries, allocation of land and of CAPEX. It was carried out so well that the operating profit of the European sector almost doubled.
“The initial motivation was not the exchange rate. The main motivation was to bring production closer to our customers and to reduce labor costs, as costs in Europe two years ago were lower than labor costs in Israel. It received an extra push from the shekel-dollar rate.
“When we started the move, no-one supposed that it would also provide us with a hedge against a strong shekel. Had we not done it, there would have been significant erosion of gross profit, by 3-4%.
“Now, the subsidiaries are manufacturing products that in the past were developed and produced in Israel,” Yankovitz said, but nevertheless stressed, “I’m an Israeli and a Zionist, and the activity in Israel has also grown. We managed to create substantial protection against the appreciation of the shekel, but our development activity remains in Israel, and it’s in shekels. Wages have risen significantly, and we estimate that the current situation (a shekel-dollar rate of NIS 2.9/$, N.A.) will lead to a hit of 0.5% to our results.”
Asked whether Arad had downsized its workforce in Israel, Yankovitz answers, “We have not laid off workers in Israel, but all the growth in manpower took place in Spain and Italy. We hired dozens of people there who could have been employed in Israel.”
“The next machine – not in Israel”
Avraham (Novo) Novogrotzky, president of the Manufacturers Association of Israel, believes that the case of Arad is a sign of things to come. “Industry always has problems, whether it’s property tax which rises on automatic pilot, the cost of water, the environment, or the business environment in Israel which isn’t cheap. But the dollar exchange rate is a game changer. An exchange rate at this level over time, without going back to 3.5 shekels to the dollar, will lead many companies to decide to transfer activities overseas.
“We’re talking about dozens of companies, both in high tech and in traditional industry. Some are already transferring production lines overseas, others are deciding that their next development will not be carried out in Israel,” Novogrotzky says.
According to a survey recently carried out by the Manufacturers Association among hundreds of companies, 40% of them are considering transferring a substantial part of their activity overseas. For high-tech companies, the proportion is 55%. 33% of companies estimate that they will have to lay off employees; in high tech the percentage jumps to 54%.
But so far we have hardly seen any public companies transferring activity overseas.
“Even if existing production remains in Israel, they won’t place the next machine here. It will happen within six months to a year at most. It takes time to order a machine and to decide where to locate it, but at these exchange rates the decision whether to locate it here, in Romania, the Czech Republic, or the US, is very easy.
“An Israeli worker now costs exporting industrial companies 20% more than a year ago, without him receiving a shekel more in wages. A gap of 20%, and sometimes 30% because of Trump’s tariffs, is a huge gap and leads companies to make decisions. You don’t have to be a great prophet to confirm the survey we carried out among industrialists and technology executives and to understand that the trend is forming. The longer the shekel-dollar gap continues, the more you will see factories not being opened, or closing, or, at best, production lines being transferred overseas. And that’s true of defense and healthcare companies as well.”
Novogrotzky points to another statistic. “The Central Bureau of Statistics publishes data on Israeli production overseas. It shows that from the beginning of the slide in the shekel-dollar rate in the final quarter of 2025, it rose from $2.5 billion to $4.5 billion in that quarter. Even if existing projects remain in Israel, new projects are transferring abroad, and we estimate that in the first quarter of 2026 that trend only strengthened.”
Published by Globes, Israel business news – en.globes.co.il – on May 25, 2026.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2026.
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