It's no surprise that Turkey is on the radar of almost every savvy investment company around the globe. Connecting the pulsating continent of Asia and Europe’s colourful southeast, Turkey has always had the luxury of mixed heritage. Today, that historic dualism has created a buzzing business environment unknown anywhere else in the world, combining a European-style focus on progress and innovation and Asia’s unrivalled growth potential in one, striving state.
The city of Istanbul is a good example for Turkey’s inherent polarity. At a first glance, it appears more like a European city than the throbbing port city of an ancient country, which is what it actually used to be. The architecture of old Constantinople, however, is still ostensible everywhere you go, giving the thriving city life a surreal ambience.
Blending antique setting and postmodern avant-gardism, modern Istanbul is proof that Turkey is a secular, progressive and modern country that has more than one finger on the pulse of time.
So, how come Turkey is still doing well in a time of global market volatility? Because it is more dynamic than a ‘classic’ European marketplace and still growing only comparable to emerging economies such as the BRIC region. Most importantly, Turkey has still not reached maturity, offering a wealth of opportunities for the trailing equipment industry to burgeon between Bosporus and Mediterranean shore.
Despite global doom and gloom, Turkey’s economic performance is still promising. According to a report published by the Turkish prime ministry, the share of the logistics sector in Turkey’s GDP is estimated between eight and 12 per cent, giving the transport industry significant political influence. Plus, “Turkey's geographical location establishes a link between the East and the West, which makes the transportation industry crucial for the economic development of the region,” according to the report. A key advantage to support the development of local manufacturing.
The country’s geography also is the main reason why road transport is the major mode of freight transportation in Turkey – the alpine countryside is harsh and the rail network underdeveloped. And, unlike Western Europe, rail poses a limited substitution threat for roads in the long-term. At present, 90 per cent of goods are carried on the road, indicating huge growth potential; especially since entry barriers are still low. But, the competition is intense and the sector is fragmented, as the 2010 government report has found.
Turkish logistic companies mainly serve the sectors in which most foreign trade is concentrated, including the textile and automotive industry, retail and food, petrochemicals, machinery production and the construction segment. In particular, the share of construction and construction equipment has significantly increased in the past decade, creating a growing need for trailing equipment of any size.
But, the world’s economic downturn has recently put a strain on the sector’s development, as Dr Ercan Tezer, General Secretary of the Turkish Automotive Manufacturers’ Association (OSD) revealed at the country’s first ever Commercial Vehicle Conference in Istanbul last month. “While the Eurozone crisis has limited finance for general investment and R&D across the board, it has also reduced market demand. In combination with strict emissions legislation and an increasing oil price, this development will affect the commercial vehicles sector as a whole,” he said, predicting that China may be one prominent victim of that development.
“Production will move from west to east and north to south, and Turkey will have to find its place in that constellation,” he explained. “But, Turkey already is the EU’s seventh-largest truck producer, so there is a viable basis for the industry to maintain positive growth.” That momentum, in turn, would also fuel demand for transport equipment.
Plus, there is one more overriding development that is likely to fuel progress and help Turkey overcome the Euro slump. “The year 2023 will mark the 100th anniversary of the Turkish Republic and see Turkey ranking amongst the world’s top 10 economies,” Tezer announced in Istanbul. Currently ranking 16 in the world, the Turkish government is expecting substantial economic growth until 2023. “By the end of that year, exports will hit US$500 billion compared to a current $135 billion.”
The framework for that “prescribed” boom has been laid in 1996, when Turkey signed a customs union with the EU zone for the free circulation of industrial goods. A decade on, the country then took a second step to evolve into an R&D location that is able to actively shape the future of the heavy-duty vehicle market – since 2008, 100 per cent of R&D expenses are deductible from corporate tax. The result of that political measure is already palpable: At the moment, the country’s automotive industry, including the commercial vehicle segment, can draw on 50 dedicated R&D centres between the Bulgarian border in the west and Iran in the Far East. In 2013, it will be 75. “We want to increase the global competitiveness of the Turkish automotive sector and transform it into a high value added structure characterized by the usage of high technology.”
To achieve that goal, there is still a long way to go, Dr Ali G. Göktan, Chairman of the Board of Turkey’s Automotive Technology R&D Centre (OTAM), said in Istanbul. “There still is an R&D infrastructure gap we have to close to stay ahead of competing countries like Spain, Poland and Romania.”
Compared to most of the international competition, however, Turkey passed the economic acid test when the GFC hit the country in 2008-9. After a year of immobility, the republic recovered swiftly and reported solid growth until the end of 2011. It was not until the first quarter of 2012 that production ceased again due to the Eurozone crisis. “We have a distinct export focus and the EU is a key trade partner, hence the current development is not beneficial for the commercial vehicle market,” said Tezer.
According to Roman Mathyssek, Director & Head of Global Truck Research and Advisory at IHS Automotive, that development is not surprising. “The commercial vehicle market is extremely volatile and closely linked to the overall state of the economy,” he explains. “Considering Turkey’s exploding import and export activity, we are currently not too worried about the local market. The country will soon require more structural haulage capacity, so we expect a boom in heavy duty truck demand and, therefore, also a need for more efficient transport equipment. “
Recent statistical data can undermine that prediction. Turkey’s economy has fared better than most countries in Europe since the 2008-9 crisis, in part a function of greater banking-sector health. The road transport activity, for instance, rebounded in 2010 after just a year of decline, which is a strong sign of economic strength. By contrast, after the 2001 crisis, road transport stayed weak for many years.”
Latest data now indicate that in 2012, GDP is forecast to expand by 2.4 per cent in real terms, on the heels of an 8.5 per cent plus in 2011, paving the way for a favourable market development.
“Most importantly, Turkey’s truck market has enjoyed relatively high sales since the mid-2000s, on the back of newfound economic stability,” says Mathyssek. “Especially the heavy-duty sector is growing since 2003, and we believe it’s a sign that the overall mix will change in the long-term. As a result, the need for articulated trailers will rise as well.”
Considering Turkey topography and road network, such equipment would have to be quite resilient. “There have been huge investment in infrastructure, but there is still much catching up to do,” says Mathyssek. “That’s why transport equipment must be able to withstand non-paved roads – a key challenge for foreign companies trying to gain a foothold.”
At the moment, most leading European trailer manufacturers – including Schmitz Cargobull, Krone and Koegel – are edging into the local market, which is dominated by local powerhouse Tirsan. And, according to consulting firm IHS, China has Turkey on the map as well.
But, while many believe that the lack of local industry protectionism would be good for all except local manufacturers, the local giant has prevailed against the foreign invasion up to now.
“Faced with rising fuel prices, strict environmental legislation and generally saturated markets, the international opposition has to contend with flat or shrinking demand at home since the GFC peaked in 2009,” says İffet Türken, Executive Board Member of Kaessbohrer/Tirsan A.Ş. “To compensate, they have turned their attention to emerging economies like Turkey. Ironically, we are also looking to expand on export volumes, which could create an interesting dynamic in the time to come.”
As a result, a neck-and-neck competition is emerging that could either provide a valuable import opportunity for the global elite or favour Turkey’s own trailer manufacturing industry, enabling it to not only recapture market share, but place itself on a solid, sustainable and increasing base. In that sense, the Turkish market is much like its Indian counterpart.
Considering the inherent growth potential of Turkey’s infrastructure sector, the most urgent question for the local trailer fraternity is how to best exploit its own strength and existing market opportunities, weigh up the relevant risks and benefits, avoid potential pitfalls, and so turn the buoyant atmosphere to its own advantage.
Türken’s Tirsan Group has tackled the issue by a consequent focus on growth by acquisition. Established in 1977, the company signed an agreement with French cold chain specialist Lamberet in 1994 for the distribution of refrigerated semi-trailers in Turkey. Only one year later, it achieved an exclusive distribution agreement with DAF Trucks in Turkey. In 2002, the ambitious company purchased German powerhouse Kässbohrer, followed by the acquisition of Dutch tanker expert Talson in 2003. In 2007, German brand Hendricks joined the Tirsan Group.
Today, the privately owned conglomerate is the biggest semi-trailer producer in the region, boasting a combined workforce of 1,102 employees who generate a revenue of €250 million. True to the motto ‘attack is the best form of defence’, the Group is now operating in more than 48 countries worldwide, actively challenging the European competition on their home turf.
“We consider ourselves a mass niche producer, providing custom made logistics solutions with our four brands, Tirsan, Kässbohrer, Talson and Hendricks,” says Türken, who can draw on 350,000 m2 of factory floor in Adapazarı outside Istanbul and another 108,000 m2 in Goch, Germany. After a US$ 16 million automation investment in 2011, Tirsan can now boast a production capacity of 15,800 units per year – making it the 4th biggest semi-trailer manufacturer in Europe.
In 2011, Tirsan effectively produced 6,898 units. In 2012, it is aiming for
8,750 units, 6,614 of which will be sold in Turkey. “Our market share in Turkey was 47 per cent in 2011,” says Türken.
By following the industry trend and investing in R&D – Tirsan opened the country’s first dedicated trailer R&D centre in 2009, using up two per cent of the company’s total turnover – the brand has taken on the challenge to defend that market share against the global competition. According to Türken, Tirsan will bank on lightweight design and a range of high-tech equipment – such as a Wabco EBS as standard, the K-Fix load securing system and a dedicated safety system – to maintain a leading position in the domestic market. While the Tirsan brand is meant to continue dominating the local marketplace, the Group’s exports portfolio will be promoted under the Kaessbohrer name. Talson and Hendricks equipment will be available across the board.
According to a recent image ranking by German magazine “Verkehrsrundschau”, that foray has already been a success. The Tirsan brand is the second most recognised brand in Germany’s fleet sector after Koegel, ranked above Schmitz Cargobull and Krone. Hence it is no surprise that Türken’s mission statement is an ambitious one. “We want to become the third biggest semi-trailer manufacturer in Europe,” she says – daring the industry’s elite to challenge Tirsan on the brand’s Turkish home ground.
Considering Türken’s battle call, Turkey is different to fellow emerging economies in regard to product specification. While India, for instance, is still focusing on robust, low-maintenance equipment, Turkey’s transport industry is asking for add-on value, such as high-tech building materials, state-of-the-art telematics, tyre pressure monitoring and modern safety technology.
While Tirsan does not hesitate to think big, the country’s mid tier sector, mainly located in Konya, is less exuberant. Located in the centre of Turkey, the million-people city has become the centre of mid-sized trailer manufacturing in Turkey – mostly because the component industry has been settling in the area as well. According to braking expert Haldex, of a total of 90 well-established Turkish trailer manufacturers, 75 are based in Konya.
Robust products made to measure at a keen price – these qualities are the strength of the local trailer fraternity, some of whom are already on the verge of extensive automation. According to a Haldex report, however, the typical Turkish trailer manufacturer is nothing like front-running brand Tirsan. “Approximately 100 employees, 600 to 1,000 units annually – in Turkey, such medium-size companies set the tone in the trailer manufacturing sector.”
A lot of medium-sized companies in the area – such as young, ambitious brand Özgül and local rival Nursan, still focus on a conservative range, including a durable low bed design and tough tipping equipment, often complemented by a silo and container range and a dumping body. “The truck usually has a rear tipper in tow, provided it does not have to pull any special equipment such as a tank or silo trailer. This special rear tipper has lateral sidewalls like a curtain-sider and is therefore an all-rounder of the first order. This makes it possible to carry bulk material such as wheat just as easily as goods on pallets or pre-packed in bags,” according to a Haldex report.
However, Konya’s industry has long realised that change is in the air; and flexibility may be its most outstanding characteristic. ABS and EBS are becoming standard across the country, as are high-tensile steel and European built componentry. In addition, the local component sector is developing rapidly as well, says Özlem Gülşen Arkan, Secretary General of the Association of
Automotive Parts & Components Manufacturers (TAYSAD). “We already have a very strong local supply base, but there is also a lot of room to improve, especially in the electronics segment,” she says. “Based on lean manufacturing and constant brand development, we try to shift from mere manufacturing environment to an innovation-driven economy.”
However, managing and planning for market volatility still remains a challenge for the local manufacturing industry, especially if market requirements should increase faster than the sector can cope. “Increased trade and internationalisation may uncover structural disadvantages within local companies that don’t have a support network outside of Turkey,” says IHS expert Mathyssek.
Despite that reservation, analysts around the globe attest Turkey’s trailing equipotent sector a buoyant future. It is safe to say that the ability to perform end-to-end tasks from design to production, after sales support and repair service will be one key issue to fulfil that promise. But, what country’s trailer elite is most conscious about is a successful transition from a productivity-focused economy to an innovation-driven one that is more likely to endure economic fluctuations on a global level.
Local experts already see Turkey evolve from a mere manufacturing giant to a crucible of innovation that is able to overcome the old dichotomy of quantity and quality. And, some argue that if any one country has ever been capable of overcoming divergence, it is Turkey.