A Bit of Elbow Grease
Nihat Ergün, Turkey’s Minister of Science, Industry, and Technology, emphasized the role of science and technology in the development of Turkey’s industrial sector in a recent conversation with TBY. “With a view to adapt industry to ever-changing conditions and increase the competitive power of the country in the international marketplace, great importance must be given to R&D,” argued Minister Ergün. In recent years, the authorities have substantially increased R&D expenditures, tripling the total number of people employed in R&D and increasing total spending to approximately 1% of GDP. The government hopes to realize similar growth in the years ahead, ambitiously targeting to achieve 3% of GDP spending on R&D by 2023. This strategy is in line with Turkey’s aim to use advances in technology and science to hone its reputation as a manufacturer of high-quality and value-added goods.
TEXTILES & CLOTHING
Turkey’s textile and clothing industry is one of the main drivers of economic production and growth in the country’s economy. According to figures from the Ministry of Economy, Turkey is the world’s sixth largest cotton producer, and cotton plays a central role in the country’s textile production. The total value of textile production in Turkey exceeds $30 billion, of which $26.3 billion is exported, taking a 19% share of the economy’s total exports. The most important trading partner for Turkey is the EU, where Turkey is the second largest textile and ready-to-wear clothing supplier after China. Turkey’s next biggest textile trading partners are Russia and, increasingly, countries in the Middle East. Overall, Turkey is the world’s seventh largest textile producer and the fifth largest producer of ready-to-wear clothing. Although most of the country’s textile production is centralized in and around Istanbul, Turkey has a number of other important textile production hubs, including Bursa, Denizli, Izmir, Tekirdağ, and Gaziantep.
Although Turkey’s strength in textile production dates to the 1960s and 1970s, the textile sector continues to innovate and develop. A main factor in the industry’s continued competitiveness and forward momentum is Turkey’s burgeoning fashion industry. Turkish producers have evolved over the past two decades from producing contract garments to independently producing new fashions for international markets. The promotion of Turkish brands through Istanbul Fashion Week and other headline events has helped the industry demonstrate its sophistication and ability to move up the value chain to produce more luxurious and higher quality items. These developments will ensure that Turkey will be able to compete with cheaper producers such as China and India in the coming years.
Steel production, though not as well known as Turkey’s textile market, is a substantial component of the country’s industrial portfolio. Steel production in Turkey contributed approximately $15.5 billion in exports or about 11.5% of total national exports in 2011. In an interview with TBY, Namık Ekinci, Chairman of Turkish Steel Exporters Association, indicated that Turkey’s steel production, already 10th in the world and second in Europe, has significant additional capacity for future growth. Ekinci estimates that Turkey’s steel production will contribute more than $17.5 billion in exports in the coming years.
Exported primarily to neighboring countries in the Middle East, North Africa, and the Balkans, Turkish steel is attractive due to its competitive pricing and serves as an engine for infrastructure development in the region. In order to continue to expand capacity and increase exports despite the recent slump in construction, producers are aggressively seeking access to new markets. Turkish steel producers are currently negotiating agreements to increase exports to other regions as well, particularly with partners in South America such as Chile, Peru, and Colombia.
AUTOMOTIVE & MARITIME
The heavyweight in Turkey’s industrial exports remains the automotive sector. The automotive sector is dominated by partnerships between Turkish and foreign firms such as Tofaş, in partnership with Fiat, Ford Otosan, and Oyak-Renault. Other foreign firms have also made substantial investments in production in Turkey, including Honda, Hyundai, Toyota, and Mercedes-Benz. The auto industry’s total production in 2011 reached 1,189, 131 units, an 8.6% y-o-y increase. Passenger cars (PCs) led the way with 639,734 units produced in comparison to 549,397 commercial vehicles (CVs). However, due to slumping demand in European and world markets PC and CV production in the first five months of 2012 is down from 2011 figures over the same period, decreasing 14.2% and 1.6%, respectively. Despite the recent decline, automakers remain upbeat about expanding Turkey’s exports to new markets and continue to expand production capacity with an eye to the future. The automotive sector exported 790,966 units, making up approximately $15.8 billion in exports according to Turkey’s official statistical institute, TurkStat. This production represents a y-o-y increase of approximately 14.5% in dollar terms from $13.8 billion in exports in 2010.
In a conversation with TBY, Orhan Özer, President & CEO of Toyota Motor Manufacturing Turkey, discussed how the authorities have set ambitious goals for growth in the automotive sector as part of the government’s vision for 2023. Some of the goals include doubling the production capacity industry-wide and creating a Turkish-branded car. Özer indicated that the government of Turkey’s strategic investments in R&D will help the country move from not only being an automotive production hub, but into becoming a driver of product design and automotive technology worldwide.
With access to the Mediterranean, Aegean, and Black seas, it’s no surprise that Turkey has also developed a considerable maritime industry. In 2011, shipbuilding contributed $1.5 billion to the economy while ship repairs and maintenance added another $1 billion. In line with the government’s push for expanded industrial exports, the shipbuilding subsector realized more than $1.2 billion in exports, a 14.9% y-o-y increase from 2010. Turkish shipbuilders produce a wide range of products, including cruise ships, excursion boats, ferry boats, cargo ships, barges, and naval vessels. In addition, Turkey has a growing ship subsidiary industry for which anchors, chains, bollards, locking equipment, windlasses, electric cables, and hydraulic units are produced. Although demand for vessels and maritime equipment was significantly dampened by the economic crisis in Europe, the industry has experienced a strong recovery in the past two years and the Ministry of Economy predicts an increase in the production and variety of maritime products in the coming years, particularly in the shipbuilding subsidiary product segment.
CONSUMER ELECTRONICS & WHITE GOODS
Another rapidly growing industrial sector in Turkey is consumer electronics and white goods. Figures from the Ministry of Economy show that radio, television, and communications equipment exports were worth more than $2 billion in 2010. Television production was the most important segment for exports, with more than 7.7 million units exported out of total production of 9.3 million units.
Turkey also has a flourishing white goods sector, which registered more than 19% growth in 2011. The major players in durable consumer goods are Arçelik, Vestel, BSH Ev Aletleri, Indesit, and Kumtel, which collectively reported total production of 18.4 million units of six main product groups, including refrigerators, deep freezers, washing machines, dish washers, ovens, and dryers in 2010. About 75% of this production was exported, contributing approximately $3.4 billion.
Despite the drop in demand for durable goods due to a slowdown in the construction sector, Turkey has continued to expand its durable goods exports so far in 2012. Turkey’s production and exports of white goods have increased 7.8% and 15.2% respectively in y-o-y terms over the first four months of 2012, while domestic sales have slumped, decreasing 0.5%. Market analysis from Åžeker Securities predicts that the white goods segment will grow by around 3% in 2012, but warns that the sector’s heavy reliance on European demand could hamper growth if the EU’s economic difficulties persist. Expansion into markets in the Middle East, CIS, Russia, and North Africa could help producers mitigate the effects of Europe’s decreasing demand for durable consumer goods. Major white goods manufacturers in Turkey maintain a solid position vis-í -vis their competitors, due to efficient supply chain management and the strength of local parts producers.
Turkey’s retail sector has also produced strong results in the past few years, as giants such as Migros-Tansaş, BİM, Carrefour-Dia SA, and other players continue to gain market share over the unorganized retail segment. Other major Turkish retailers include A101, Bizim-Åžok, Metro-Real, Kipa, and Kiler, representing a mix of domestic companies and Turkish-foreign partnerships. According to Åžeker Securities, Turkey’s retail sector grew to TL214 billion thanks to a CAGR of 5% from 2007-2011. Unorganized retailers still make up 59% of the market, however, representing substantial room for growth for the organized retail segment. Organized retailers hope to capitalize from continuing trends in urbanization and gain market share by increasing product range and introducing more attractive retail store formats.
FOOD & BEVERAGES
Another key sector of Turkish industry is food and beverage production. One of Turkey’s most rapidly growing subsectors, food and beverage exports grew to $6.5 billion in 2011, a y-o-y growth rate of 9.6%. More than 50,000 Turkish firms, primarily consisting of SMEs, produce meat, dairy, sugar and sweets, flour, and confectionery products as well as alcoholic and non-alcoholic beverages, fruits and vegetables, water, and tobacco. Major players in the food and beverage sector include Coca-Cola İçecek and Anadolu Efes in beverages and Türk Åžeker, Ak Gıda, Konya Åžeker, Ülker, and Eti in food production.
A 2010 analysis of the food and beverage industry conducted by Deloitte Consulting argued that as a major agricultural producer, Turkey is well positioned to expand in the food and beverage industry. Currently, the food industry makes up approximately 18%-20% of Turkey’s national production. Business Monitor International predicts that food and the total volume of beverage production in Turkey will reach $9.1 billion by 2014.