Kibbutz Tzuba: meeting the social and economic challenges of a changing Israeli society.

Goldstein, Larry

CASE DESCRIPTION

The primary subject matter of this case concerns business policy. Secondary issues examined include organizational theory, marketing decision-making and the effects of cultural institutions and political orientations on decision-making. The case has a difficulty level of four, appropriate for senior level courses. The case is designed to be taught in two class hours and is expected to require three hours of outside preparation by students.

CASE SYNOPSIS

This case deals with a culture (Israeli) about which most students know little and an Israeli institution (the kibbutz) about which most students know nothing. It presents the history of the kibbutz movement and its evolution to the present. This is done to establish the cultural environment in which a particular kibbutz, Kibbutz Tzuba, operates. Like other kibbutzim, Kibbutz Tzuba was founded as a socialistic agricultural collective. And like most of the other kibbutzim, it has had to adapt and embrace elements of capitalism to survive the social and economic changes within Israeli society. While it has retained some elements of socialism, Kibbutz Tzuba has become entrepreneurial and has engaged in a number of capitalist ventures. However, the decisions it has made may not be sufficient to ensure its long-term survival.

INSTRUCTORS' NOTES

This case was developed as a result of discovering that among the many cases in international marketing available for study, there are almost none dealing with Israel. This case is the product of secondary research of books and newspaper archives and original research with some of the principals of Kibbutz Tzuba.

This case lends itself to both discussion and debate. The instructor can lead a discussion of the questions presented in the case, preceded by a lecture presented by the instructor or by students of relevant background information. This information can be gleaned from a number of sources, including some very good books that have been written about the kibbutz. Among these are Mort, J.A. & Brenner G. (2003). Our Hearts Invented a Place: Can Kibbutzim Survive in Today's Israel? Ithaca, NY: Cornell University Press; Blasi J.R. (1986). The Communal Experience of the Kibbutz. Somerset, NJ: Transaction Publishers; Blasi, J.R. (1978). The Quality of Life in a Kibbutz Co-operative Community. Israel: Givat Chaviva Educational Foundation; Krausz, E. (1983). The Sociology of the Kibbutz. Somerset, NJ: Transaction Publishers; Rayman, P.A. (1982). The Kibbutz Community. Princeton, NJ: Princeton University Press; and Rosner, M. (1984). The Integration of Agriculture and Industry in Cooperative Villages: The Experience of the Kibbutz. Israel: Haifa University.

An abundance of information can be found about the kibbutz with an online Google search. In addition, information about Israel and the kibbutzim can be accessed by searching the archives of the "Jerusalem Post", http://www.jpost.com, and the "Jerusalem Report", http://www.jrep.com.

The author has found that students enjoy debating case issues. Questions that could be debated include whether or not there is a place for the kibbutz in contemporary Israel society, whether or not Kibbutz Tzuba should become fully privatized, whether or not Kibbutz Tzuba should abandon its agricultural businesses in favor of more profitable industrial or service businesses, and whether or not Kibbutz Tzuba should pursue global marketing opportunities.

CASE OVERVIEW

Like all other kibbutzim, Kibbutz Tzuba was founded as a socialistic agricultural collective. Member families relied upon each other and the kibbutz took care of all their needs, including room and board, employment, education, medical care, and child care. There was no private ownership of anything. The system worked well until the 1980s, when heavy debt brought many kibbutzim to the brink of bankruptcy. As Israel evolved from a socialistic to a capitalistic society, greater economic opportunities were to be found outside of the kibbutz and many young individuals and families abandoned the kibbutz way of life. As a result, kibbutz membership declined as the average age of kibbutz members increased.

To survive, many kibbutzim abandoned the philosophy of the collective (or significantly modified it) and embraced privatization and competition. While members could own their own homes, for example, productive assets of the kibbutz remained the property of the kibbutz, although members could own shares in those assets. Many kibbutzim branched out into industry, treating their businesses as profit centers and competing in both domestic and international markets.

The need to survive forced Kibbutz Tzuba to evolve as well, but its members did not want to fully abandon their socialistic underpinnings. Members do not own their own homes and they do not pay rent. They pass their salaries to a common pool and live on budgeted allowances. However, the communal food budget has been privatized and members are expected to pay for their own meals, though the cost of those meals to members is heavily subsidized by the kibbutz.

Competition and (limited) marketing have found their way onto Kibbutz Tzuba. The kibbutz' agricultural output is sold on the open market and the kibbutz is involved in a number of non-agricultural domestic business enterprises, such as a family entertainment center, a hotel and convention center, a dining room/restaurant, a glass factory and an automobile service center.

Notwithstanding all that has transpired, many questions remain. Is the "renewed kibbutz" really a kibbutz in the historical sense? Is there still a need for the kibbutz system? What purpose(s) does the contemporary kibbutz serve? Should Kibbutz Tzuba fully embrace privatization? Is its governance structure optimal? What can it do to increase the profitability of its enterprises? What other opportunities are available to it? Should it consider international markets?

After a discussion of the case and background reading, students should understand how a kibbutz is and should be governed, the role of the kibbutz in Israeli society, and the kinds of decisions (social, cultural and economic) that a kibbutz must make if it is to survive and prosper in a society whose values would seem to be antithetical to those of the original kibbutz movement. Students should also realize the conflict members of kibbutzim have between retaining a culture that fosters mutual cooperation and adopting a culture that is centered on competition and the individual. Additionally, students should be able to evaluate what global marketing opportunities Kibbutz Tzuba has in light of the anti-Israel sentiment that exists in many global markets.

DISCUSSION QUESTIONS

1. What role did the kibbutzim play in Israeli society?

The kibbutz represented a way of life consonant with the socialist values of the early settlers of the land. On the kibbutz, there was no class system--everyone was equal. There was no private property--the kibbutz owned all assets. The emphasis was on community--members helped each other and felt responsibility for each other. This unique society that was the kibbutz movement was instrumental in many aspects of the struggle towards the creation of the State of Israel and in its early development. The kibbutzim had a disproportionate role in the settlement of the country, in its defense during the country's founding wars, in immigrant absorption and in the development of agriculture.

2. What role do the kibbutzim have in contemporary Israeli society?

There are those who declare that kibbutzim have no role in contemporary Israeli society and forecast their imminent demise. Their reasoning is that the communal, socialist ideology which was the basis of traditional kibbutz life is no longer in tune with individualism, modern technology and the economic realities of the global economy. Others attribute the decline of the kibbutz to the decline of agriculture. The kibbutzim have been too successful in increasing agricultural productivity, resulting in plummeting agricultural employment.

On the other hand, there are those who believe that the kibbutzim continue to be important to Israeli society. With about 1% of the Israeli population, kibbutzim account for one-third of Israel's total agricultural output. In addition, there are individuals and families who continue to be attracted to the kibbutz lifestyle. In fact, the Kibbutz Movement has recently launched a program to attract families in the United States and Canada to settle on a kibbutz. Advertisements placed on Web sites and at a series of conferences in the United States and Canada promote the social advantages of kibbutz life. To date, over 200 families have responded to this campaign and have settled on a kibbutz. Two reasons stand out for their decision: the community that exists on a kibbutz and the free, high-quality education available on the kibbutz.

3. Evaluate the "renewed kibbutz".

The renewed kibbutz is the Kibbutz Movement's response to changes in Israeli society which had led to declines in the kibbutz population as Israel evolved into a competitive industrial nation. In the renewed kibbutz, members can own their own houses, work outside of the kibbutz, and receive differential salaries according to their contribution to their kibbutz' economy. All productive assets remain in the ownership of the kibbutzim, but kibbutz members can own shares of those assets. To attract new members kibbutzim use a more flexible definition of membership to make it easier to join the kibbutz. While these changes are a radical departure from the traditional kibbutz, other aspects of the traditional kibbutz have been retained, viz., improved social security programs, particularly pension plans, for the rapidly aging kibbutz population; and provision for members' education, health care, welfare and care for members with special needs.

One result of the renewed kibbutz has been the elimination of equality and the introduction of personal competition. With differential salaries, clearly some jobs are valued more highly than others, which suggests the creation of a class system. Certainly the lowest class would consist of people who work in low-technology positions and live on the kibbutz but are not kibbutz members. Along with differential salaries comes the state of mind that demands a bigger house and a finer car to reflect one's higher position.

The renewed kibbutz may have spurred an economic revival and an increase in kibbutz populations, according to the most recent (2003) statistics. Total kibbutz revenue was 27.95 billion shekels, up from 26.29 billion shekels in 2002. Of the total income, 5.2 billion shekels came from agricultural production, 19.37 billion shekels came from industrial production, 1.6 billion shekels came from services and 1.73 billion shekels came from members who work away from their kibbutz. The number of people living on kibbutzim increased to 116,200, representing an increase of 0.5 percent from 2002. Of these, 97,944 are permanent members. The average income per kibbutz member is 9,948 shekels a month, which is below the national average.

Overall, about 60 kibbutzim are in a very strong financial position, where members receive excellent health care, pensions and education, in addition to providing high-quality cultural events and facilities. About 40 kibbutzim are said to be in need of assistance and the remaining 100-130 kibbutzim are in a state of recovery and getting stronger.

Another indicator of improved kibbutz economic activity is represented by the increase in total economic operations of the Mishke Hakibbutzim corporation, an organization established to provide financial services and assistance to kibbutz members. Those operations reached 1.05 billion shekels in 2004, representing a growth of 8% from 2003. This growth came as a result of new activities such as car rentals and providing loans to members wishing to purchase a vehicle. With about 38% of kibbutz members working outside their kibbutz, kibbutzim spent 404 million shekels in 2004 on car purchases so that members could drive to their jobs. About 45,000 kibbutz members held credit cards and in 2004, made credit purchases in the amount of 550 million shekels.

4. What are the benefits of becoming a member of a kibbutz?

Psychologically, becoming a member of a kibbutz satisfies the need of belonging that individuals have. Being part of a group reduces one's feeling of loneliness and alienation. Sociologically, becoming a member of a kibbutz provides a sense of community. All too often, particularly in urban environments, people do not know their neighbors. In the kibbutz environment, people tend to know each other and feel as if they were part of an extended family (although this might change in the renewed kibbutz where capitalism, competition and a flexible definition of membership could very well bore into the traditional communal spirit). Economically, becoming a member of a kibbutz provides job security as one can move from one kibbutz enterprise to another with relative ease. In addition, membership offers the benefits of health care, pensions and education. Finally, in a renewed kibbutz, members can be shareholders of the kibbutz' productive assets.

5. Should kibbutzim encourage membership? What are the consequences of doing this? How can it be done?

16% of those living on kibbutzim are not members of a kibbutz. This situation was necessitated by the decline over many years of the kibbutz work force. In addition to these nonmembers, many kibbutzim found it necessary to employ outside, often foreign, labor to work in their fields and in their industries. If kibbutzim were to encourage membership, it could reduce their reliance on foreign labor, elevate the social class of people who are currently nonmembers and increase total revenue. On the other hand, successfully encouraging membership would increase the kibbutz' expenses as housing would have to be built if it was not currently available and the economic benefits offered to members would have to be funded.

If a kibbutz wanted to encourage membership it would have to promote the benefits and opportunities available with membership, including the psychological, sociological and economic benefits discussed above. Opportunities exist to work outside of the kibbutz, and within the kibbutz there are choices of where one could work and there is always the potential for advancement into management. Promotional campaigns would have to be waged not only in Israel but in countries with sizeable Jewish populations, such as the United States, Canada, England, France and South Africa.

6. Is Kibbutz Tzuba a traditional or a renewed kibbutz?

In a renewed kibbutz, members own their own homes and have shares of the kibbutz' productive assets. This is not the case in Kibbutz Tzuba where members live rent-free in homes owned by the kibbutz and work in kibbutz-owned enterprises. Although Kibbutz Tzuba does have some characteristics of the renewed kibbutz, such as members able to work outside of the kibbutz, some privatization and treating the kibbutz' industries as profit centers, overall Kibbutz Tzuba is a traditional kibbutz that has embraced capitalism and competition.

7. Evaluate the organizational structure of Kibbutz Tzuba.

Unlike in a renewed kibbutz where the managers of the kibbutz' enterprises report to a board of directors, the latter having replaced the traditional general assembly, in Kibbutz Tzuba the general assembly has been retained and meets every two to three weeks to discuss the major issues facing the kibbutz. It also ratifies the annual budget and oversees the elections of key kibbutz personnel. It is the Kibbutz Authority, consisting of a series of committees that governs all aspects of kibbutz life. The two major committees are the Secretariat, which authorizes all the other committees, and the Economic Board, which makes all the economic decisions that affect the kibbutz.

In essence, even though a kibbutz enterprise is a profit center, its manager is not free to make major decisions but must go to a committee, the Economic Board, to make those decisions. The Economic Board, itself, is responsible to another committee, the Secretariat. Finally, the General Assembly has the power to approve or veto any decision brought before it. Thus a qualified manager's decision could be overridden by kibbutz members who are not qualified to make such decisions.

For example, the indoor skating rink at Kiftzuba was built in 2000 at great expense and closed in 2004 because of exorbitant labor and insurance costs. These costs should have been considered before the rink was built. A cost-benefit analysis might have led to a decision not to construct the rink. Consider, too, the decision to stop selling the kibbutz' grapes to a wine-producing company and to establish its own winery and its own brand. This is a venture that requires both expertise and capital. Even if Kibbutz Tzuba has both, why decide to restrict sales to a visitors' center?

8. Should Kibbutz Tzuba sell off its housing to its members? How might the proceeds from such a sale be used?

Many of the members of Kibbutz Tzuba are wedded to the concept of the traditional kibbutz. Privatizing the housing is antithetical to this concept. However, selling off the housing to members ties members to the kibbutz and might serve as an incentive for new individuals to join.

Kibbutz Tzuba has approximately 150 family apartments and an additional 120 single apartments. It is estimated that each family apartment would sell for $250,000, while each single apartment would sell for $150,000. The total value of such sales would amount to some $55.7 million. It should be noted that the prices of the apartments include parcels of land, too. Uses of funds from the hypothetical sales of the apartments are limited only by the students' imagination.

9. What marketing opportunities exist for Kibbutz Tzuba?

Subject to the availability of funds and sufficient demand, the following are some marketing opportunities available to Kibbutz Tzuba.

a. Expand the operations of the glass factory by targeting different users of safety glass, for example, shower doors, display cases for businesses like Stern & Co., commercial aircraft.

b. Expand Kiftzuba by providing facilities for older teenagers and possibly for adults, making Kiftzuba a total family entertainment center,

c. Open Kiftzuba-type entertainment centers in other parts of the country.

d. Promote the archeological sites on the kibbutz to encourage visits by different groups, such as students, tourists (both Israeli and foreign) and amateur archeologists. This could be tied to a stay at the Hotel Belmont and to meals in the kibbutz dining room. It could also be part of a Kibbutz Tzuba-organized visit to other archeological sites in and around Jerusalem.

e. Promote Hotel Belmont to organizations both in Israel and abroad as a convention center of choice, making sure that additional amenities are offered, for example, an indoor swimming pool, transportation to Jerusalem and activities both day and night for attendees and their guests.

f. Build a sit-down restaurant with its own menu which would be open for lunch and dinner. Promote the dining room as the place to eat to experience kibbutz dining and promote the restaurant as the place to eat for impeccable service and gourmet cuisine.

g. Expand the handicrafts store and make it inviting to visitors. Maintain regular hours of operation.

It is doubtful that Kibbutz Tzuba, by itself, has any opportunities to market abroad.

Larry Goldstein, Iona College