So today the Manufacturers Association of Israel is out calling on the government to implement some kind of emergency rescue program to save the fledgling textile industry. They say that due to the Shekel strength over the last year or so, exports have fallen and about 5% of workers in the industry have lost their jobs in ‘08.

According to a report in Globes: “While textile exports fell 3.3% to $520 million in the first half in real terms, compared with the corresponding period, textile imports (especially from Asia), rose 18.6% to $656 million.”

Unfortunately what they neglect to say is that this is nothing new. Israel has lost textile market share for years, as even local producers have turned to Jordan and other countries with much cheaper production costs. Basically, due to the fact that many in the Israeli textile industry are unionized, they have succeeded in pricing themselves out of the market, forcing companies to turn to cheaper alternatives. It’s the Association’s own fault and now they want the government, i.e taxpayers, to bail them out. Sorry. If you can survive, great. If not, try producing something else.

I realize that government bailouts of certain sectors and populations has become the norm over the last couple of months, as governments in both the UK and the US, have bailed out banks that played fast and loose with their and depositor’s money. And let’s not forget homeowners in the US who were encouraged to purchase homes that they couldn’t afford, couldn’t make monthly mortgage payments, and are now getting bailed out by Congress, the same Congress that encouraged them to make the purchase in the first place. But why can’t we just let the market take care of itself.

If developing countries are able to produce goods on the cheap, let them. Developed countries should concentrate on what they do best, which is producing value-added goods and services. Each country should specialize in what they do best, thus we will get the best goods at the most attractive prices. I am not going to go into an analysis of Francis Fukuyama’s “End of History’ theory, but specialization does have advantages.

The Israeli government should stand strong, and not succumb to a bailout of the textile industry. Either the Israel textile industry should make the necessary changes needed to compete in a global economy, or they should face the music.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Tefron (TFR) is a neat, little textile company that manufactures boutique-quality everyday seamless intimate apparel, active wear and swimwear sold throughout the world by such name-brand marketers like Victoria’s Secret, Nike (NKE), Target (TGT), The Gap (GPS) and others.

The company makes some high-end seamless sports apparel that’s being adopted at the level of the MLB, NFL, NBA, NCAA, ATP, World Cup Soccer, as well as by local and international Rugby, Running, Rowing, Softball, and Tennis clubs.

Yet, not all is bliss at Tefron.

They reported today after issuing a profit warning about a month ago and things don’t look great.

As we’ve written previously, Tefron has been having a rough time of it. In Tefron: Sexy Lingerie, Ugly Financials, we’ve explained that a part of Tefron’s woes stem from a Victoria’s Secret product line that we learn is ultimately being outsourced to India. Although the company says that this move won’t have a material impact on 2008, what’s going on here is a general product transition in the company.

The company is maturing its technology and sales towards servicing the high-end sports market. Companies like Under Armour (UA), Columbia Sportswear (COLM). Adidas (ADDYY.PK) and Nike (NKE) are all positioning to service professional league-level equipment and the much larger market behind it: sports fans. My son wears a Michael Vick (God help us) Nike Jersey to bed every night and is infrequently seen without his David Beckham jersey, now of the Los Angeles Galaxy.

Yosef Shiran, the CEO of Tefron, has to say this about what’s going on:

“However, given our expectations for improved active-wear sales in the fourth quarter mainly due to positive indications received from Nike for increased ‘next generation’ product orders, and a seasonally stronger quarter for swimwear sales, we expect a strong improvement in sales and margins in the fourth quarter compared to the second quarter of 2007.”

Tefron is migrating its business from lower margins, declining sales to an upper-end product aimed at athletes. Nike has made a mint out of this market over the past 20 years and Under Armour has seemingly come out of nowhere to become a $3 billion player.

I still own (and wear!) my Patagonia pullover I wore to beer parties at Dartmouth in my college days. Tefron needs to execute now on its product transition towards high-end sports apparel to lock in the athletic market to be able to sell to my kids when they enter school.

With the growing international worship of professional athletes, that’s the market I’d want to blow out.

Disclosure: Author’s fund is long TFR as of 8/9/07 and doesn’t hold any of the other stocks mentioned in this article.

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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email zack@profile-financial.com

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