Turkey's role in supplying global brands
What do GAP, Ikea, Next, and Nike have in common?
Many things, such as brand recognition and success to start with. But also they all use Turkey as a hub for supplying products to their global networks.
Over the past decade, the growth of buying offices in Turkey has been one of the least publicized indicators of the country's industrial transformation. These offices keep low profiles, quietly scouring the industrial areas of Anatolia and Thrace for factories who can meet their needs, and then working with them to supply low-price products to their far flung outlets.
For buyer and seller, the less said the better. The buyers do not want to attract their competition, and the sellers to lose their contracts to other Turkish suppliers.
Tim Bright of Nicholson International, the international executive search company, believes that this growth of sourcing companies is a major success story for Turkey. One of his customers, a well-known clothing brand, now only has three sourcing hubs, the US, Hong Kong and Istanbul, he says. Another has centred its activities in Hong Kong, Sri Lanka and Istanbul. And a third recently closed its European operations in Italy, transferring these to Istanbul.
In the case of Ikea, the company was long sourcing items such as sofas from Turkey before it decided to invest in outlets in the country. In other cases, the investment has not been in bricks and mortar but in the quality of the way the local partner operates. This is especially the case in apparel, where design and quality are key attributes of the international brand. Companies such as AB Lindex of Sweden, JC Penney and Sears have found themselves increasingly involved in the manufacturing process. One well-known brand now has a workshop of its own, employing 75 people to make samples for its suppliers. But the result is an annual turnover of $300 million at export prices -- and perhaps $0.8-1 billion at high street prices.
The existence of these companies has to some extent protected Turkey from the progressive loss of competitivity of the Turkish lira. In June 2005, the Turkish lira was at the same level against the US dollar as in mid-2001 and worth about 10% more than its average for the period 2001-2005. The loss of value of the dollar means that these figures overstate the situation: compared with the Euro, the Turkish lira is worth 40% less than in mid-2001, but it too has risen 10% since early 2003. All this is while Turkish costs have continued to rise. In the 12 months to May 2005, consumer prices rose 9%, following a further 9% increase in the 12 months to May 2004, 31% in the 12 months to May 2003, and 46% in the 12 months to May 2002.
This harsh reality is causing a number of US buying offices to cut back their operations. "It is nothing to do with 9/11, it is because Turkey is losing it on price," the manager of one such office says. It is also losing out to China. For many years, customers have been prepared to pay more for just-in-time delivery. Turkish manufacturers ability to produce and ship rapidly has become increasingly important as retailers can no longer rely on a one summer and one winter collection, but have to lure customers with up to 12 offerings a year, each one far smaller in quantity and more likely to require a sudden top up.
This remains important for Europe, in particular for countries such as Germany where retailing is going through hard times. However, Turkey has far less advantages for the far more distant US market. Indeed, a US retailer can equally well be supplied by China as by Turkey - and this is what many are choosing to do.
One well-known high street retailer who has been working in Turkey for four years says that Turkey has "been and gone" as far as being a source for the US and that it is "reaching maturity" where countries such as Germany and the UK are concerned - and needs to be careful not to let these markets slip out of its hands. Tim Bright believes that Turkey will continue to keep an edge where "constructed goods", that is items with a significant degree of design and make-up complexity, home textiles and denim items are concerned. He also describes a new Turkish export, of skills to help sourcing operations in other countries. An example of this is the way that the textile export company, GAAT, which has long been working for Walmart-subsidiary ASDA, is now training staff in Mexico to source for Walmart itself.