WAW Turkey 21-10 final

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WAW Turkey 21-10 final
Turkey Report 01
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TURKEY
Is Turkey worth it?
In the first place
it's tough
Up.Down. Up. Down. It feels
like a roller coaster; but it
can be costlier. It is Turkey's
economy.
Last time it plunged was in
February 2001. Kaya Ersu,
President of Opsan, an auto
Turkish roller coaster
8
80
6
Variation GDP (%)
100
60
4
40
2
20
0
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
0
-2
-20
-4
-40
-6
Variation P. Car sales (%)
10
-60
-8
-10
-80
variation GDP
variation passenger car sales
Source: OSD and Taysad
parts company, remembers
being at a fair in Germany
that day. His blood pressure
was getting high. For 2 hours
he had been doing something
Turkish people do better
than anybody else: bargain.
He would get the machine he
needed for his plant in
Istanbul. Or so he thought,
until his Marketing Manager
called him from Turkey. The
government had just
devaluated the Turkish
Lyra. In 15 minutes, Ersu's
purchasing power beyond
Turkey's borders had
plummeted by 50%.
Back in
the lounge in
Frankfurt airport that day,
Ersu was not all about
sipping J&B and whining
about his bad luck. Instead
he already was planning
his next move. Before the
night was over he sketched
the guidelines of a more
export-oriented strategy.
“We've learnt to run
and grow our
businesses in the
midst of this mess”
Selcuk Gezdur, Koc Holding
“The upheavals of our
economy are mind-boggling
for outsiders, but every-day
bread for Turkish
entrepreneurs. We've learnt to
run and grow our businesses
in the midst of this mess---or
call it a challenging business
environment.” The
comment is from Selcuk
Gezdur, Vice President Auto
Supplies and other
automotive companies
within the Koc Holding
Company. Over the last 10
years he has witnessed 3
economic crises and the
much disputed lifting of the
country's trade barriers with
Europe.
Then it doesn't get
that much better
“Most damaging to the case for
exchange-rate pegging in
emerging-market countries is
that it can increase financial
fragility and heighten the
potential for financial crises
with devastating effects on the
economy.” writes Frederic
Mishkin, a research associate
of the US Bureau of
Economic Research and
visiting scholar at Japan's
Ministry of Finance. “Yeah, I
know,” says Katsumi Sawai,
CEO and President of Honda
Turkey.
In February 2001 he woke up
with a huge problem. The
country had called to a halt the
IMF-supported EBRS program
that, for 18 months, had pegged
the Turkish Lyra to the dollar.
Interest rates soared. Demand
collapsed. Compounding the
disaster was Honda's strategy:
unlike most manufacturers that
flocked into Turkey after trade
barriers with Europe were
dismantled in 1996, the
Japanese car maker came with
the domestic market as a
primary target.
The government, literally,
applies disincentives to
the passenger car market.
Average overall taxes on
car purchase, in the EU, is
18%. In Turkey, it is 62%.
Freshly arrived in June 2000,
Sawai witnessed the cataclysm.
Car demand nose-dived 70%
and the cost of imported parts
from Asia --on which Honda's
p r o d u c t i o n t h e n
overwhelmingly depended
shot through the roof, turning
local manufacturing into an
economic morass.
Text and research: Jean-François Tual. Project coordination and advertising: Agostina Da Cunha.
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Sawai says Honda now sources
60% locally and is much more
immune to the country's
macroeconomic hiccups and
shoots for a production target of
50,000 cars a year by 2010.
Turkey's mercurial domestic
market will remain its darling. In
the long run, the local market
should represent 60% of Honda
Turkey's turnover. The carmaker
plans to capture 10% of the
Turkish market within a decade.
Turkey's population exceeds 70
million. With an average 92
vehicles per 1000 inhabitants
(Hungary, Bulgaria, Poland count
over 250, Greece 350),
the
country shows great potential for
growth. Local demand should
soon hit 800,000, say Turgay
Durak, President of Ford Otosan
and President of OSD, Turkey's
Automotive Manufacturer
Association.
No more dizzy
1000
900
7000
800
Exports ($ millions)
6000
700
5000
600
4000
500
400
3000
300
2000
200
1000
36
0
00
35
28
01
52
72
Vehicle production (000 units)
8000
100
0
02
OEM exports ($ millions)
Motor vehicle production (units)
03
04
Auto part exports ($ millions)
Production capacity usage (%)
Source: OSD and Taysad
But there's a catch. Turkey is one of
the IMF's largest debtors. Every
year, it struggles to attain its
targeted primary surplus of 6.5%.
Another constant struggle,
servicing interest payments on
external debt, accounts for a
whopping 40% of total
government spending. So Turkey's
Prime Minister Recep Tayyip
Erdogan is hungry for hard
currencies, has his eyes on the
short-term clock, and is not too
keen on bolstering
local car
demand mainly fed by imports.
One may think the government
actually applies disincentives to
the passenger car market. Average
overall taxes on car purchases in
the EU are 18%. In Turkey, they
climb to 62%. This infuriates
many people, starting with Sawai
and Durak, who steadfastly lobby
through the OSD for investment
incentive schemes and a friendlier
business environment for Turkish
carmakers.
So why are they all demand soared 150% for stellar.”
passenger cars, toppling the
coming?
Koc, the employer of Gezdur
and Durak, is Turkey's most
powerful business empire: a
mammoth holding company
with more than 100 ventures
and a turnover in excess of
$15 billion. Seldom does it
venture, and stay, in an
unprofitable business. In the
automotive industry it has
stakes in many of the largest
companies of the country.
Notably, it owns 59% of Ford
Otosan, a joint venture with
Ford, and has a 38% share -equal to Fiat's in Tofas Fiat.
These two companies have
played an historical part in
the development of the
Turkish automotive industry.
Today, along with Oyak
Renault, they are the largest
vehicle manufacturers of the
country.
Koc is not the only one
finding that car production
in Turkey is not that bad a
business after all: 17 vehicle
manufacturers have set up
shop there, the country's
installed production
capacity has recently topped
1 million vehicles per year,
and the industry now directly
and indirectly employs more
than 500,000 people.
Oyak Renault invests $100
million annually in Turkey.
In 2006 it will disburse $250
million for its New Clio
platform. Tofas Fiat has
earmarked $300 million for a
new joint venture with
French carmaker Peugeot
Citroen. Hyundai has
announced plans to triple
production in the next five
years to over 300,000 units
and is investing $500 million
in new platforms. Toyota and
Ford Otosan, the other two
major players in Turkey, are
also raising production
capacity.
In 2004, a sturdy rally of the
Turkish Lyra contributed to
foster imports. Local
2000 record mark of
660,000. But the Turkish
automotive industry's big
boost is export-driven.
The end of custom tariffs
between Europe and Turkey,
in 1996, completely reshaped
the industry, explains Ercan
Tezer, OSD's General
Secretary: “Focus shifted to
international markets, and
Turkey became an
extraordinarily attractive
option for whoever wanted to
produce for the European
markets.”
Then, adds Selcuk Gezdur,
“The last 2 years, with the
prospects opened by entering
the European Union and the
subsequent necessity to rein
macro economy in, have
brought unseen stability to the
country. Foreign investment is
now more attractive than ever
in Turkey, because it is less
risky. Reward prospects,
particularly in automotive, are
The OEMs champion this
view. They will invest more
than $1 billion in the short
term. But the country needs
more. Most of the flagship
vehicle platforms the country
hosts are mature, and will
soon grow obsolete. Turkey's
automotive sector needs to
attract a raft of new projects
“Focus shifted to
international markets,
and Turkey became an
extraordinarily attractive
option for whoever
wanted to produce for
the European markets.”
Ercan Tezer, OSD's
General Secretary
to achieve its goal of 1.5
million vehicles produced
and $15 billion of exports in
2010. This, according to
Tezer and other experts,
implies persuading
automotive companies to
invest $3 billion in the
country in as many years.
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What should Turkey do?
A look at the expert corner
Jan Nahum speaks fast; and as he talks he draws even faster. The
complicated overlapping of arrows, boxes and formulas he
enthusiasticcally sketches is wholly incomprehensible. But what
for Peugeot into Turkey's first LCV (light commercial vehicle)
contract manufacturer, he has stuck to the same motto: Turkey
must focus on design and R&D.
he says is not. Nahum
comes as shorthand
for the industry guru.
The son of one of the
automotive industry's
founding fathers in
Turkey and formerly
responsible for Fiat's
overseas operations,
he is reckoned by the
whole sector as a man
whose advice will
always do your
business a lot of good.
Nahum explains that
because nowadays, in
automotive, value has
moved down -- and up
Jan Nahum
-- the value chain,
either branding or innovation generates it -- not manufacturing.
The OEMs' mother companies wage at the headquarters' level
the fierce marketing war that global branding requires. Turkish
actors cannot compete on this front, and will only survive
through the development of intellectual property, knowledge
and technology.
Mehmet Can Karabag agrees. Ever since he took over as
Karsan's CEO in 2000 and transformed the one-time assembler
Mehmet Can Karabag
There is another point
where Can Karabag's
and Nahum's views
meet: Turkey's best bet
is to position itself as a
light-vehicle production
hub for the European
market. Why? Because
they think Turkey has
strong arguments to
attract mid-sized
projects, calling for
medium-range
technology and high
flexibility, rather than
large-volume, highly
standardized and
automated ones, for
which East Asia surely
will remain a magnet.
Hence Can Karabag strategy: “There are countless up-to-20,000unit platforms set in mass-production plants designed to produce
200,000-units annually in the sector. This is not efficient. Our
strategy is based on finding a solution to this inefficiency.” Karsan
offers OEMs the opportunity to outsource their low-volume
platforms to a facility specifically designed to manufacture these
vehicles more efficiently. It pushes forward the merits of well-
04 Turkey Report
planned-and-executed subcontracting strategies
that have proved beneficial elsewhere in Europe.
Outsourcing of low-volume platforms enable the
OEMs to focus on their core activities, while
lightening and optimizing their investments in
other business lines.
Unlike many companies in Turkey, Karsan is
100% independent. Can Karabag took advantage
of the company's shareholder structure; he has
pushed to market new services to different lightvehicle producers. Such services include die
manufacturing for Fiat Italy, body part stamping
for Tofas Fiat, cabin stamping and painting for
Renault Trucks, and e-coating as well as cabin
assembly for Ford.
The company also handles vehicle
transformation. End 2004, it developed the
prototype of an elongated version of the Peugeot
Partner series it produces. Once
commercialization details are landed, Karsan will
have added at no cost a new niche product to
Peugeot's portfolio, while profitably driving up the
use of its own capacities. OEMs are increasingly
attracted to services of this kind --production of
niche and special models from light innovations
on mass-production vehicles. Without any
investment, they can launch small batches of
longer, taller, 4x4 versions of their commercial
vehicles, or market their customized versions to the
“Developing a design- and engineeringoriented strategy is how Turkey will
attract new platforms and shelter itself
from Eastern Europe and Asian
competition” Jan Nahum
military and hospital segments.
Karsan is successful because it has invested, and
keeps investing in design and engineering. Its
white and blue collars are experienced and well
trained, its factory modern and flexible. The
company can undertake development and
engineering activities for its clients, and does so in
record kick-off response times for most projects.
Turkey will attract new platforms and shelter itself
from Eastern Europe and Asian competition by
developing a design and engineering oriented
strategy, say Nahum and Can Karabag in a
synchronized chorus. They are adamant that the
Turkish government declare R&D a national
priority, and give all the necessary incentives to
spur companies to invest in intellectual property.
Design tops the cost structure at all global auto
companies. With its infrastructure and its
engineers, Turkey could carry out the OEMs' design
and engineering activities 25% cheaper than
Germany, France, Italy or the UK, according to M.
Nahum. That may well be the country's decisive
argument.
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The Ivy Leagues
In the run-up to the 1996
Ankara agreement that
slapped down trade
barriers between Turkey
and Europe, many
Cassandras took the floor:
unleashed European
competition would bury
the domestic industry.
Three years later,
doomsday scenarios were
shelved.
Omer Bilgin, President of
the Turkish Association of
Automotive Parts and
C o m p o n e n t s
Manufacturers TAYSAD,
actually insists that the
abolition of tariffs between
Turkey and Europe turned
out to be the strongest
boost the industry has ever
received. Turkish
companies were forced to
raise their quality
standards, achieve ISO
certification, and adopt
export-oriented
strategies.They
accomplished all of this
with remarkable success.
obvious, the industry developed and
local auto part companies started
bagging fatter contracts. Still only a few
of them bought into the promises of
long-term investment and intellectual
property. Those that did so, though,
have a big smile now.
Teklas and Standard Profil are two
companies with striking similarities.
Murat Danon and Rafit Kamhi, their
respective presidents, traded marbles in
kindergarten. As Fiat and Renault set up
shop in the country, at the end of the
1960s, both young men saw a future for
automotive rubber products. Today
their companies are Turkey's largest two
rubber auto component manufacturers,
and the two chairmen are still close
friends. Friendship, legend has it, got a
lift from their early decision to
concentrate on complementary product
lines: Teklas would produce hoses and
injection moulded rubber parts,
Standard Profil would design weatherstrips (complete sealing systems). Both
have played on technology to lure the
OEMs.
However, Bilgin points
that last year's hefty rally of
automotive production in
Turkey was fed mostly by
imports: they ballooned
95% to $6.5 billion in
2004. Lately, Turkish auto
part manufacturers have
been loosing domestic
market shares to their
i n t e r n a t i o n a l
counterparts. In most
cases, what's behind the
bad news is the
technological gap between
Turkish and international
actors.
Before automotive really
took off in Turkey in 1990,
few companies were in the
position to muse over what
to do with the cash they
generated. Later, as
Turkey's appeal grew
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Teklas invests 6% of its turnover in
R&D every year, far more than any of
its competitors. A simple component
manufacturer in its early days, Teklas
has leveraged its fat investment policy
to climb up the value chain and
emerge as an auto part designer and
developer. The company's
development team numbers more
than fifty engineers, working both
internally and at the OEMs' facilities.
Information flows between the client's
Standard Profil began knocking at
Volkswagen's door in 2001. It has since
won six platforms with the German
OEM, among them the flagship New
Golf's; and is poised to tackle its first
project with Audi. Already Turkey's
leading supplier of sealing profiles, the
company is on pace to achieve its 2006
goal: secure a permanent supplier
position with 6 of the OEMs in its
portfolio.
department, which numbers 28
engineers, ranked 7th last year in the
list of the most robust contributors to
Tubitak, Turkey's scientific and
technical research council. To date,
the company has submitted 23
projects to the institute, 50% of which
were completed. Standard Profil also
has its own machine shop, where 25
employees toil at ensuring that the
company has complete control of
whatever production input it needs.
In the 90s, few Turkish auto-part companies bought into the
Companies such as Teklas and
promises of long-term investment and intellectual property. Those
that did so have a big smile now
and the company's technological From the moment Standard Profil
centres, allowing for quick, efficient started working with its first OEM, GM,
in 1991, the company raised R&D to
and coordinated R&D efforts.
the top of its agenda. It has done
Results square with expectations: everything to cast itself as a full service
Teklas has already been awarded on supplier, and constantly works to
three occasions GM “supplier of the reinforce this positioning. Priority is
year”, and is a member of the Ford Q1 given to projects that involve
Suppliers club. Integration, in some important work in the design and
cases, goes beyond that: Teklas development areas, and co-design
operates a development office in opportunities are systematically
Wolfsburg, Germany, the heart of sought after.
Volkswagen's R&D efforts, and is now
The company defines itself as a
part of its 100 top suppliers list.
“developer source”. Its R&D
November 2005
Rifat Kamhi, aiming far
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Standard Profil add gloss to Turkey's technological
development credentials. Yet, do the OEMs buy into the
country's talk of bringing their R&D to Turkey? “Europe must
forget its old mindset and drop the build-for-cheap-from-theblueprint attitude. Turkey has more to give than that.” Danon
insists.
exported worldwide. A long-standing Q1 supplier,
Akkardan is now pushing hard on the other OEMs it
works with, such as Mercedes Benz, to leveraging more
of its FSS capacities. “We want to get more work at the codesign stage” says Faruk Ebubekir, Akkardan's
chairman.
It seems he's being heard. Vedat Okyar, Ford Otosan's
Purchasing Manager, says that for the last two years he has put
the airing of his company's expectations on play-back mode:
“We want to see more FSS (full service suppliers) in the country.”
Okyar apologetically concedes that Ford Otosan used to
champion the build-from-plan approach. But now, he says,
Ford Otosan strongly supports programs that encourage
suppliers to invest in technology.
The company is no sophomore in the game of R&D: the
same year the company was established, 1974, it
started developing its own technology. A few years ago,
when the OEMs decided to get their suppliers to toil
over the drawing board as well, Akkardan was ready.
“We are able to develop our own drive shafts. All the
engineering can be done in-house, with our CAD and CAE
technologies. We also work directly with different
European institutes, for particular tests that we are
unable to conduct locally.” says Dr. Hamdullah
Merdane, General Manager of the company.
Full court press
With an overwhelming 70% market share in its segment,
Akkardan is Turkey's leading supplier of propeller shafts and
steering columns. In a partnership with Ford Otosan, the
company is currently co-developing a new kind of adjustable
steering column. The patent for this innovation will remain its
property. Propeller shafts for the Ford Transit, significantly
different from those designed at Ford's Belgian design center,
already come from Akkardan's drawing rooms and are
The company has invested an average $1.5 million
annually over the last three years and has earmarked
$2.5 million for 2005. That accounts for more than 5%
of the company's $35 million turnover. “We are just
consistent with our plan, an ambitious one: Akkardan will
hit the $100 million sales mark within 10 years.”
Ebubekir explains.
It doesn't take much to figure out what any OEM's
decision to outsource R&D activities means for Turkish
companies. Teklas, Standard Profil, Akkardan were
honest minor league players until their landmark first
supply deal for an OEM. Volume came, cash got in,
investment sprung, competitiveness blossomed, and
more OEMs lined up to shop at their stores. Now,
because they invested in technology, these three
companies enjoy a reassuring edge over a new breed of
Chinese contenders already breathing down the neck
of many another Turkish companies. More than
simply resilient, they are now seriously on the offensive.
Akkardan, which works with all the country's LCV
assemblers, is now attacking the high-potential
passenger car market. Besides, Ebubekir is seriously
eyeing at Europe, where Akkardan sold most of the $9
million it exported last year: “We already have the
European mindset and capabilities. Now it's about getting
the figures to reflect that.”
Meanwhile, Teklas, which has grown 200% over the
past three years, has laid a 300% growth plan for the
next five years. Over the same period of time, Standard
Profil plans to boost its turnover past $200 million, a
conservative goal by the company's recent-year
performances: it has grown 150% to $100 million over
the last four years. In no time it could join the world's
Ivy leagues; there are signs it already is. “As we won the
new Astra GM platform some time ago, rumours started
spreading that the company was treading on the brink of
bankruptcy. The noise got so loud that we decided to get
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GM to come and re-audit us entirely. We took this belowthe-belt blow from our competitors known in the industry
as 'the Big 4'- as a positive omen: they seem to consider us
as a threat for their business.” says Rifat Kamhi with a
mild smile. Last April, he received his sixth consecutive
Supplier-of-the-Year Award from Gary Cowger, GM
Group Vice President in charge of global
manufacturing and labor relations.
Yogurt's appeal
Ambitions are on the rise. These Turkish champions
have started looking at what they could reap outside
their borders. Their strategy is a downright redux of
what they witnessed in their country a few decades ago.
Except this time they are the ones thumbing through
the industrial land availability directory to see where
they'll pin down their new low-cost assembly factory. In
this task, they've come to a unanimous conclusion:
Bulgaria is their next move. “Bulgaria is cheap, closer to
our European markets, and not saddled yet with the
tighter labor laws rained upon the ex-Eastern block
countries that have already made it into the EU” Murat
Danon says. This may sound familiar; until not so long
ago, this is pretty much how Turkey cast itself to
investors.
In a way, the trend backs Nahum and Can Karabag's
views; Turkey's edge is moving away swiftly from the low
cost model. However, Turkish champions do not intend
to stay put and say thanks for the contracts they pocket
with commercial vehicle manufacturers. They're now
gunning for large-scale car platforms.
Another person you're likely to chance upon in the Sofia
airport lobby is Omer Boyacioglu. He's the head of
Turkey Report 07
Trakya Cam, Turkey's leader in automotive glass parts. He's
also part of the happy crowd that now owns a swath of
industrial land in Bulgaria. Over the past 2 years his
company has invested over $30 million there, in a float
glass plant that will start operations beginning in 2007.
Boyacioglu explains, “It is trakya Cam's first investment
outside Turkey. We're doing it for two reasons: move west, and
show our clients their supply is secure”. This will be Trakya
Cam's third facility. Over the past 3 years, the company has
invested more than $50 million in its other plants.
“It is now time for Turkish auto part suppliers to
move from small flexible production to massscale series. Soon we'll have physical presence in
Europe.” Omer Boyacioglu, Trakya Cam
The reason why Boyacioglu's pockets are so deep is because
he has a pretty well-off backer in Sisecam, the $1.6 billion
Trakya Cam's mother company. Sisecam has money
(including a $200 million investment in its Bulgaria
expansion) and ambition. It also has over 300 engineers,
significantly more than a handful of who put their brains
at Trakya Cam's service. Thanks to them the company can
propose its clients the full package: design, co-engineering,
development. The business has grown an average 30%
annually over the past 5 years to reach $450 million in
2004. Today, Trakya Cam can glaze 1.6 million cars a year.
It is an exclusive designer for the Ford V277 Transit and
the Renault Logan, and is increasingly pushing its scope
beyond the commercial vehicle segment. Boyacioglu is now
shooting from the waist: “It is now time for Turkish auto part
suppliers to move from small flexible production to mass-scale
series. We must take on the passenger car market, both the
cheap-end and the luxury segments. We have the R&D and the
know-how. Soon we'll also have physical presence in Europe.”
Turkey is on the move; not everybody is resolved to heed
Nahum's advice and stay away from the Ivy leagues.
08 Turkey Report
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Be not Afraid
How Turkey is casting competition away
Last year, China's casting
production topped 19 million tons.
Turkey's hit 1 million. Still, go sit
an hour at Doktas Dokum's offices,
south of Istambul, and you'll be
copiously lectured on why Turkey's
casting business has nothing to
fear from its Chinese and Indian
peers. Doktas's General Manager,
Yaylali Gunay, says entrepreneurs
salivating over cost-per-employee
in China and India ($100 a month
in China and $200 in India against
$1,200 in Turkey for a blue collar
worker, $400 in China and India
against $2,500 in Turkey for an
engineer) would be well inspired to
pore over the figures a bit more
thoroughly.
Gunay factors in the productivity
of these same employees, weights
in the cost of raw material such as
basic and nodular pig iron or steel
scrap, and adds the logistic and
transportation costs. The cost fault
line mends: landing 1 ton of Gray
ductile iron at any central Europe
factory will cost you an average $1,200,
regardless of whether you produced it
in Turkey or China. For 1 ton of
aluminium, figures hit $3,600 in China
versus $3,700 in Turkey.
Solid industry trends show that China
and India's labor-cost edge are largely
outweighed by large-looming
handicaps such as extra shipping costs,
large inventories, communication and
delivery malfunctions and engineering
shortfalls. The industry's clients
demand close and flexible full service
suppliers, and contenders for business
must now flash serious credentials in
research development, prototyping, codesign, product development, IT and
testing support, as well as (sometimes)
environmental law enforcement. This
is true in casting as well as many other
automotive-related activities. Hence
Yaylali Gunay at ease in his chair. For
him, India and China offer large-scale
cheap workshops, but trail Turkey in
technology. Until they acquire it they'll
Omer Boyacioglu
be out of the full service supplier game,
and will linger on the fringes of
components manufacturing and
assembling, however wide these
fringes.
So are Turkish companies that safe
and sheltered from competition? Yes
they are, Gunay says, if they don't go for
the wrong business model: “logic,
along with algebra 101, must call the
shots in the sector not CEOs' inflated
egos and ambitions.” He stresses that
Turkey must shun the pitfall of “the
bigger the better”. Debt-financed
acquisition blitzes have sunk worldclass players. In their attempt to erect
over-dominating empires, they have
pursued snatch-whatever-it-takes
strategies that he labels as hazardous
in an industry where profit margins
are rack-thin and asset books at target
companies are bloated. Turkey had
better concentrate on complex,
technology demanding mid-sized
projects rather than huge-volume ones.
Doktas, with its $250 million turnover,
is among the 50 biggest foundries in
the world. It enforces what it preaches.
Since Doktas foresees that in the long
run machined products will account
for over 50% of its business, it now
unapologetically turns down projects
that do not keep its R&D engineers
busy.
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Turkey Report 9
10 Turkey Report
Haluk Ozyavuz scores high in both
columns of Gunay's manual of Do'sand-Don'ts for Turkish CEOs. First, he
hardly qualifies for the low-profile
award. In 2001, as he arrived at the
head of the Cevher Group and took
the helm of its cornerstone aluminum
foundry, Cevher Dokum, many in the
industry seriously questioned his
sanity. The business was a very
respectable one: the company
churned out 4,000 tons of aluminum
parts for the automotive industry
each year. But by 2011, M. Ozyavuz
trumpeted, the figure would rise to
50,000 tons. Four years later, the
target is still a long shot, but the
company has made serious inroads: it
has just topped the 15,000 tons mark
near a 400% growth in 4 years. The
group, which also owns another
foundry that produces 20,000 tons of
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and at the German headquarters of
the giant's European operations. The
same pattern applies with other
clients, such as Renault or Fiat, that
have traded with Cevher for dozens of
years. As a whole, the company does
not have to deal with competition for
60% of the products it sells to the
OEMs.
No competition doesn't mean taking
a nap. Cevher has been able to build
and maintain this single-supplier
position because it keeps up with its
clients' demands. The group boasts
25 years of experience in co-design
and has leveraged the skills of its own
R&D department since the early 90s.
For years, Renault, Tofas Fiat,
General Motors have entrusted
Cevher with the development of their
cylinder heads, cylinder blocks, brake
General Motors, often singled out for its fierce and
unapologetic sourcing policies, accepts Cevher Dokum as
unique supplier for as much as 90% of the parts it buys from it
aluminum a year and an alloy wheel
plant that can deliver 2 million pieces
a year, is now on the hunt for more
growth opportunities. So, is Ozyavuz
flushing Gunay's playbook down the
sewer?
Not quite. Cevher plans to bolster the
business by strengthening the relation
with existing customers, more than
hitting the road to convince new
clients to shop at its plants. Not that it
will turn down opportunities: serious
talks are afoot with Mercedes, for
instance. But the group will put more
energy into lobbying its clients to
supply more tailored and higher
value-added products and services.
Asked to pick a telling difference
between his companies and their
competitors, Ozyavuz triumphantly
answers, “Exclusivity.” Cevher
Dokum is often, for its product range,
the sole supplier of the OEMs it works
with something highly unusual in the
automotive world. A company such as
General Motors, often singled out for
its fierce and unapologetic sourcing
policies, accepts Cevher as a unique
supplier for 90% of the product range
it buys from this supplier. With 4
Supplier-of-the-Year Awards, Cevher
is one of GM's darlings; both in Detroit
callipers, brackets, and intake
manifolds. Cevher Dokum's product
range spans 130 categories and more
than 7 million tailored
configurations.
According to a Tubitak study, Cevher
Dokum is the only Turkish company
using gravity, high pressure, and lowpressure technologies all at the same
time. In addition to its foundry, the
company produces all the molds and
machines it needs. It has, in short,
always been one of the innovation
frontrunners in the Turkish
automotive industry. Now Cevher is
raising its game. Within months, the
company will open another R&D
department, this time in Germany.
“We want to get closer to our clients”
Ozyavuz explains, “in particular in so
critical an activity as design, the
cornerstone of our successful
relationship with them.” Cevher
exports 90% of its products, the bulk
going to Europe. “We have invested
$50 million in our capacities over the
last 4 years, and have the
manufacturing shoulders to take on
any new business opportunities”
Ozyavuz goes on. Indeed the company
can probably not afford missing
many chances, if it is to silence its
detractors.
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Turkey Report 11
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It takes two
The case for Joint Ventures
Joint ventures are no distant concept
to Turkish automotive players. Ford
Otosan, Oyak Renault, Tofas Fiat,
Hyundai Assan…the country is awash
with them. To the incoming OEMs
they bestow knowledge of the market
place, extended distribution
networks, and reassuring patting on
the back when the country's
proverbially quicksilver economy
dresses up in its worst outfits. To local
auto part manufacturers, joint
ventures often prove the best option to
stay in the game.
Maysan, the first shock absorber
producer to establish in Turkey back
in 1969, is glad it went for one. Ten
years ago, the company was in agony.
Its operating margin bled from a
fierce price war in the sector. Budgets
were dry. The company lingered in an
innovation black hole and was
reduced to milk its mature product
lines. Then, in 1997, South Korean
leader Mando stepped into the picture
with a joint venture proposal in its
hand. The moribund Maysan did not
think twice. From the beginning it felt
like a step in the right direction.
Maysan Mando brought in new
management and thoroughly
revamped the corporate structure. A
few years into the deal its workers are
young, its machines new, its
management practices lean, and
innovation has flushed back into the
structure. Maysan Mando has for 3
years now been riding a strong rally,
and should catapult last year's $31
million turnover to $60 million in
2009, according to the company's 5year roadmap.
Maysan Mando leads the domestic
aftermarket with a 33% share, sells
direct to Hyundai Assan and all the
Turkish commercial vehicle
manufacturers, and shipped $12
million of products abroad in 2004.
After the muscle flexing session of the
last few years, the company is now
moving stealthily toward its target of
growing into a full-fledged co-designer
for the OEMs. “Maysan Mando will
invest $2.5 million in R&D. It is a
considerable toll on the company's
turnover, but a strategic, pivotal longterm investment. We are not anymore
spending our bucks on capacity building
or infrastructure; we are bracing for the
future.” General Manager Erdal Elbay
says with a look of great satisfaction.
Not all automotive giants enjoy
partnering with lame ducks. When
Belgium-based exhaust-system
Care for a lift? manufacturer Bosal came shopping to
Turkey in 1997, it wanted the best
products.. So it directly picked
Mimaysan. “Bosal saw a huge potential
in Turkey, and wanted the best casting in
town. We had the track record, the brand
recognition and were, from management
mindset and practices to manufacturing
technologies, oriented toward Europe,
where we had been exporting since
1990. Our respective product range,
besides, fit very nicely.,” says Ismail
Turfanda, Managing Director of Bosal
Mimaysan.
The company employs 300 people, sells
over $40 million a year, supplies
almost all the OEMs present in Turkey
and Europe, and is a global supplier
for General Motors and Renault. Bosal
is for the first time alluding to transfer
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part of its so-far Belgium-centralized
R&D to Turkey, and Turfanda believes
that within ten years Bosal Mimaysan
will have become one of Bosal's largest
plants worldwide.
Finally there are those who were, are
no more, and would like to be again, in
a joint venture. Lucas Elektrik's
development is intertwined with the
histories of Lucas Industries Plc and
the Sakallioglu family. Both started as
equals in the Mesa joint venture in
1982. Then Lucas Industries rose to
become the main shareholder in 1987,
renaming the company to Lucas
Elektrik. But it finally divested from
the venture, after its merger with a US
company compelled it to keep at bay
Aytug Sakallioglu , man of many feats
from electrical activities altogether.
The Sakallioglu family bought Lucas'
shares and kept the name.
Obviously, bidding Lucas adieux
meant the company would no longer
enjoy the technological input of its
partner. So Aytug Sakallioglu, the
young Managing Director of Lucas
Elektrik, did not sit on his hands and
went knocking at other doors. Soon, he
struck up new partnerships, obtaining
liscence agreements from Valeo
Electrical Systems Korea and
Mitsubishi Electric. Thanks to these
moves, the company has grown into a
$12 million business that sells 50% of
its products directly to the OEMs and
exports the other half. Now
Sakallioglu wants to increase the
business five fold in 10 years, and
plans to focus on the European
market. To achieve his goal he will,
once again, bank on the alliance
model.
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Turkey Report 13
Who said Turkish
companies should no
more compete on
price?
It wasn't Keskin Keser. His company has
never co-designed a part and there are no
hints that it is inching in that direction. It
is because Keser doesn't give much of the
OEMs. His company, Mapa Makina, was
one of the first automotive firms to settle
in Turkey in 1968. Since its early days it
has shunned the OEMs and
concentrated on the aftermarket.
Keskin Keser , Price Fighter
Because its engineers need not worry
about design, they can focus their efforts
on quality and cost reduction exclusively.
These are efforts they do not spare:
without OEM backing, Ma-Pa's clutches
always undergo unforgiving quality
scrutiny, and must be significantly
cheaper than the competitors' to convince
buyers to give them a try. “Ma-Pa enters
new markets as a price fighter. We literally
slash our margins to penetrate. Then, as
time goes by and consumers acknowledge
the quality and reliability of our products,
we lift them up again and turn profits.”
Keser explains. This low-pricing strategy
has enabled the company to grow its
turnover 50% a year over the past 5 years.
As with direct sales to the OEMs,
international markets are pivotal for
Turkish aftermarket players. Since the 94
economic crisis, exports have become MaPa's priority: the company enjoys a
dominant position in its domestic market,
but it is abroad that it fuels the growth
engine. It particularly targets Europe and
the Middle East, markets for which low
logistics and transportation costs
complement its low-pricing strategy.
November 2005
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Go West
Turkish companies cast their net wider
Turkey's automotive exports have
soared 600% in 7 years. They totalled
$10.8 billion in 2004, 62% of
production. In one year automotive
has climbed from 7th to 2nd in the
ranking of the country's top exporting
industries, and Omer Bilgin, from
Taysad, points that at this current
clip automotive will have taken over
textile as Turkey's export champion
by the end of the year. Taysad
forecasts total automotive exports
will reach $13 billion by end 2005.
Automotive components exports will
account for $3.5 billion in this figure.
The EU will absorb 71% of them.
Kaya Ersu, since his experience at the
Frankurt automotive fair, has
orchestrated an impressive growth of
his business over the last 5 years. Now
the main problem he faces is actually
coping with the growth pace. In the
last three years alone, Opsan's
turnover has increased five-fold to
$30 million. Based on contracts in
hand, it will have swollen to $60
million by the end of 2007.
So Ersu, whose business is in die
production, die cutting, pressing,
welding and assembly, is scrambling
to fatten its production capacities. As
this report went to press, his new
plant, located in Gebze, 62 miles (100
km) east of Istanbul, was about to
open its doors. By the beginning of
2006, its new press, welding and
assembly lines will all be up and
running. They will add up to the ones
in the Bursa plant, which Opsan
operates as a joint venture with the
Spanish company Candema.
Already, more than 75% of the dies
Opsan produces there are directly
exported to Europe. “In the past year
we have received and we are not alone
in this case -- at least one visit a week
from European companies asking for
quotations. Europe is full of
opportunities for us” Ersu says.
Europe's growing interest in Turkey
hasn't
been unnoticed. Marisa
Yilmaz sees there the solution to her
headaches. She and her brother
Gianluca inherited Kaucuk, a rubber
spare part business, from their father.
Yilmaz says low cost competition from
Asia and Eastern Europe have dealt a
heavy blow to her company: “OEMs'
purses somehow fall short of backing their
enthusiast rhetoric on quality. Of course
they want quality, but they'll shun you if
they think you provide it at too high a
marginal cost.” The problem is Yilmaz
has proved remarkably steadfast in
turning a deaf ear to OEMs' demands:
she won't supply them with lower-end,
cheaper products.
Competition is fierce. Margins
dwindle. OEMs wield the cost-cutting
axe. You're more expensive than your
competitors because your quality is
higher. But you won't hear about
lowering it. How do you steer clear from
the stalemate?
Turkey Report 15
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Kaucuk lays out a a clear blueprint. First,
automate and modernize everything that
can be in the plant without endangering
quality. Second, focus on Europe, its
volumes, and the premiums that clients
there prove willing to pay if quality
justifies it. Third, leverage these European
volumes to start outsourcing the noncritical manufacturing stages once
economies of scale are there. Fourth, leave
quality untouched. It works. Kaucuk
already sells to Germany, France, Italy,
Scandinavia. Three continents
regularly come knocking at its
door; the company epitomizes
Turkey's potential.
Turkey has what it takes to
become Europe's automotive
production hub. It is cheaper than
Western Europe, more
experienced than Eastern Europe,
and unlike India or China, is able
to deliver high-value-added
manufacturing and design
services. Experts believe the sector
needs $3 billion in investments to
achieve critical development. As
Turkey shows for the first time
firm signs of macro-economic
stability, and its companies
scramble to put on their nicest
FSS outfits, the OEMs might
consider pouring money in.
Turkey has what it takes to turn
Europe's automotive production
hub. Its exports have soared
600% in 7 years
Belgium, Spain, Austria. Within 10 years
it plans to sell two thirds of its products
directly to European OEMs.
It is not only Europe that Turkish
companies target. Turkey's geographic
position also makes the country the best
entry door to the Middle East. Aytug
Sakallioglu, from Lucas Elektrik, thinks
that, “Turkey's geographic location, at the
confluence of East and West, is exceptional.
For this reason its future arguably lies in its
capacity to position itself as an in-between:
an in-between of continents, an in-between
of cultures, an in-between of competitive
advantages.” Erdal Elbay, from Maysan
Mando, concurs andadds:
”Our main focus is Iran. It is one of the
world's most overlooked markets, and shows
formidable prospects. Turkey is the best
positioned country to tap this potential.”
Last year Maysan Mando exported $5
million to Iran, and is now planning a
direct investment there.
And of course, as in any markets, there is
the unexpected. Say, a Turkish company
doing most of its business with the United
States. Estas Eksantrik actually doesn't
yet, but it will by the end of the year, as it
has just struck two major contracts with
Caterpillar and Cummins USA. Very few
Turkish companies of this size -- Estas sells
$12 million -- are able to bridge the
Atlantic. But Estas is into camshafts, a
small-volume, high-value product. So it
happily roams far beyond Turkish
boarders. It already sells 55% abroad,
owns two warehouses, in the UK and the
US, and plans to boost its international
operations: besides Caterpillar and
Cummins, it will soon work with Robert
Bosch in Austria and Scania in
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