Turkish Textile Sector: Still in Trouble 

There is an air of gloom in textile sector which is currently coping with such problems as; high energy costs, unregistered employment and the inability to create brands. A new roadmap is needed for the Turkish textile industry which also has great advantages.  

  Textile sector is of utmost importance to Turkish economy. The sector is one of the keystones of national economy with respect to export revenues, employment and the value added it provides. Although the sector exhibits sharp reactions to both internal and external developments being the “soft underbelly of Turkey” in times of crises, when it comes to periods of development and growth it becomes again focus of attention. The country’s turning into a producer in textile industry does not date back to very old times. Turkey has continued to be a net importer in textile until 1950 and in apparels until 1970. With the advent of 1980s Turkey could reverse this situation and began to meet the demand, if only for domestic market. Export-oriented growth policies, however, caused textile manufacturers to switch to export. In the course of time, textile sector has quickly developed forming a considerable part of country’s exports and becoming the sine qua non in Turkey regarding particularly employment. 

The Customs Union Agreement, which was expected to make great contributions to that quick development after its conclusion with EU in 1996, has created a reverse situation and imports entered into a growth period again. Contrary to expectations, textile which was defined as the sector presenting greatest advantages and having the highest competitive capacity has lost its competitive capabilities to a great extent. Having suffered setbacks after that agreement turned to be counterproductive; the sector faced yet another problem five years later during 2001 economic crisis and it consequently received a heavy blow. Since the economic program implemented after that crisis has led to a downward trend in foreign exchange rates, it became ever more difficult to make profit on exports. Because their income was in foreign currency while they paid for costs in Turkish lira, profits of textile manufacturers eroded. As a result, their position has become weaker both in domestic and external markets. The difference between 2000 data and those from the crisis year is an evidence of the large damage caused by the crisis on textile sector. For example; while the share of textile and apparel industry in total exports was 37.1% in 2000, the figure receded to 33.8% in 2001. The share of the sector in total imports was 4.40% in 2000, whereas it rose to 5.22% by 2001. Annual average production index for textile sector was 95.7 in 2000, but it decreased to 90.9 in 2001. Again, the annual average production index for apparel manufacture was 108.7 in 2000; however it was 105.3 in 2001. 

China Factor and 2005 Syndrome

Having already suffered severe blows during that crisis like every other sector, the condition of textile sector was still exacerbated by China factor. China became a World Trade Organization (WTO) member in 2001 and has created problems for many countries with its production costs that are below the world average. China, where it is possible employ a worker in eastern parts of the country for 20 dollars a month and in urban centers for 50 dollars, proved a huge advantage for textile industry which requires labor-intensive production. However, for countries where textile sector holds a considerable share in economy that development was not the least “favorable.” A great majority of Chinese-origin apparel products are of either low or medium quality. Perhaps this is a great opportunity for other countries. However, China’s starting to play an important role also in such capital-intensive textile products as fibers, yarn and fabric and its effort to modernize its production have changed the picture. In addition to lower costs, government supports that are currently being provided have rendered competition with China still difficult. For these reasons, it does not seem easy to stop China which currently controls a great part of world textile production and which has become world’s largest textile exporter. 

That pressure exerted by China in the four-year period between 2001 and 2005, together with the appreciated Turkish lira have caused the export growth rate of textile and apparel sector to slow down and naturally imports increased. Textile production gave signals of shrinkage particularly in 2004 and raw material production decreased by 1.5% as a result. The reasons why 2005 turned out to be such a frightening nightmare for textile sector are not limited only to those mentioned above. With the removal of quotas previously imposed on China, production costs of which were already dreadfully low, as of January 1, 2005 Turkish textile and apparel sector suffered a severe defeat against China in its second largest market; the U.S. Exports of the textile sector to the U.S. decreased by 4.7% in 2005, while that of apparel sector decreased by 7.6%. This defeat was naturally accompanied by price decreases as high production costs caused manufacturers to face a serious dilemma. Profit margins of textile and apparel enterprises have fallen from some 50% down to 7%. The pessimism brought about by the decrease in exports to the U.S. market in 2005 was reflected also in the overall picture.

While total textile exports rose by 6.5% and apparel exports by 4.8%, those rates lagged well behind the general export growth which was 14.7%. In that same year production side of the sector also showed a negative performance in parallel with exports. Manufacture of textile goods decreased by 11.9% while that of apparels decreased by 12.5%. While capacity utilization rate in apparels sector fell by 3.1%, investment incentive certificates issued for the sector decreased by 45.1%. It is possible to witness the difficult situation textile sector is in by looking also at the ISE (Istanbul Stock Exchange). Köytaş Tekstil Sanayi ve Ticaret, Söksa Sinop Örme ve Konfeksiyon, EGS Egeser Giyim Sanayi ve Dış Ticaret, Polylen Sentetik İplik Sanayi, Sifaş Sentetik İplik Fabrikaları, Koniteks Tekstil, Tunca Tekstil and UKİ Konfeksiyon have all been delisted from the ISE. Those investors who have invested in these companies since they believed in the future of textile sector suffered great losses. 

Switching to International Markets

Having a wide product range and strong manufacturing capacity, Turkish textile sector has oriented mostly toward overseas markets in recent periods. Higher volumes presented by overseas markets as compared to domestic market were the single most important reason for that change. But competition is much harder in international arena. That is to say, the sector should increase its existing advantages. Productivity in manufacturing further increases in developed countries thanks to advanced technology and applications like computer aided design. International companies which attach great importance to innovation in addition to production, play the game by the rule. The gradual replacement of quality by price especially for western consumers has changed companies’ priorities and marketing strategies as well. Quick consumption which is equally valid for fashion and apparels means that they are also consumed quickly today. Turkish companies’ efforts toward competition remain ineffective since they are already weak as to design in the market that is dominated by British and Spanish brands. It is hard to say that the current situation results only from high costs or other negative factors.

Turkish textile producers who have been serving as contract manufacturers for years became redundant when their services began to be bought from China. Alternative ways of directing the idle capacity were omitted. The most important one of these alternative ways is undoubtedly to create brands. However, the sector which is not used to taking risks and is adapted to production with minimal risk has neither an intention to undertake nor has the infrastructure to carry out this change. Except a few companies no one assumes the job of standing out by becoming a pioneer in fashion or creating a brand. Knowing their business well and doing market research before entering, global giants enter into Turkish market one after another in order to seize this opportunity. Experts from the sector agree that Turkish textile sector has very important advantages. An established textile tradition, sufficient experience; availability of a wide variety of raw materials, materials and processes, adaptability to small scale customer-oriented demand, flexible and quick production, competitive workforce provided by younger population as compared to developed countries, all combine to make the Turkish textile sector stand out.

Although there are still many things to do in the sector, it does not have a clear roadmap in this regard. It is increasingly shared by many that having considerable advantages, Turkish textile sector must exploit them by forming a national sectoral policy. According to prominent members of the sector, since China holds a dominant position in world textile sector its advantages together with disadvantages should be analyzed first. Doubtless to say, this giant country has its own weaknesses. Its dependence, to a great extent, on imports in synthetic textile materials, very little and limited R & D spending by its companies and low quality of its products cause Chinese textile industry to have problems against competitors. Removal of quotas after China’s entry into the WTO is also a serious threat, of course. However, in the final analysis China is a huge market with its large population and its ever expanding middle class. It is increasingly claimed recently that Turkish textile sector should target this market by breaking free from its chains. Because in the coming period it will not take long for China to become a center of consumption like any developing country with a growing economy, and to turn into a market equaling those of the U.S. and EU. 

Unregistered Employment

One of the formidable obstacles before the sector is unregistered employment. The tax burden on sector and other liabilities fuel unregistered employment. High energy costs are another problem that afflicts the sector. Energy, which is one of the basic inputs of the textile sector, causes Turkish companies to have an initial disadvantage from the start in the race for exports. Managers from the sector say that in addition to general reductions in energy prices there must be a special energy rebate granted to the sector due to its privileged position in exports. And the sector agrees that the latest VAT deduction was insufficient for overcoming those problems. Besides heavy burden of costs, there are structural problems as well. Since more than 80% of Turkish textile companies are SMEs with insufficient equity capital due to this position, it becomes difficult for them to adapt to global conditions. Not having resources to devote to R&D in such a situation, companies face problems about opening to overseas markets. Consequently, products with higher added value can not be manufactured and import is preferred instead. Pressed between these opposing concerns, investors and industrialists can not benefit even from banks’ race for lending at suitable rates. Textile manufacturers who can not find a way out of all these problems switch to different fields.

We see especially in recent period that domestic manufacturers shift from production to commerce, preferring to invest in other sectors such as cement, energy, construction and tourism and yet even worse moving their production and plants abroad. Choosing particularly Balkans and Central Asia, textile manufacturers try to get free from heavy tax burden and costs which encumber them. These developments which mean a great danger and serious problem for domestic manufacturers show us that measures including incentives should be adopted urgently for the textile sector.