Beyond "BRIC": what about Turkey? As costs begin to rise in new EU member states, nearby outsider Turkey looks to become an increasingly important automotive manufacturing hub.Market overview When asked about attractive new regions for either outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. or future growth, automotive executives would probably top their lists with Brazil, Russia, India, and China ("BRIC BRIC Brazil, Russia, India and China (world affairs) BRIC Brooklyn Information & Culture BRIC Biological Research Information Center (Korea) BRIC Benign Recurrent Intrahepatic Cholestasis " countries). However, Turkey should not be overlooked, both as an attractive market as well as a low-cost, high-quality manufacturing hub. In 2006, more than 900,000 light vehicles were manufactured in Turkey, up 14% from 2005. With light vehicle production capacity of about 1 million units, Turkey enjoyed 90% capacity utilization Capacity Utilization measures the rate at which a firm makes use of their capital productive capacities, such as factories and machinery. Capacity Utilization generally rises when the economy is healthy and falls when demand softens. in 2006. Indeed, Turkey produced more vehicles than any of the new EU member states, including Poland and Slovakia. Total vehicle sales reached nearly 670,000 units in 2006. Turkey represents a larger production base and a larger market than any country in Central and Eastern Europe The term "Central and Eastern Europe" came into wide spread use, replacing "Eastern bloc", to describe former Communist countries in Europe, after the collapse of the Iron Curtain in 1989/90. (CEE cee n. The letter c. ) besides Russia. Most of Turkey's production is light commercial vehicles (i.e., pickup Pickup A gain in yield made by selling one bond and buying another. Also referred to as "yield pickup." Notes: When the present yield is relatively low compared to the longer-term yields, pickups will be done by investors trying to increase the yield and duration of their trucks) and goes to export (69% in 2006). At the same time however, imports made up 57% of domestic sales. Furthermore, Turkey's domestic light vehicle market is projected to grow by 9% annually through 2013 to 1.1m vehicles. OEMs can take advantage of the relatively low manufacturing costs in exporting to neighboring neigh·bor n. 1. One who lives near or next to another. 2. A person, place, or thing adjacent to or located near another. 3. A fellow human. 4. Used as a form of familiar address. v. countries, and the relatively large domestic market. Production & engineering opportunities Aside from the dynamism of Turkey's market, low costs, logistics and high-quality are other reasons the automotive industry The automotive industry is the industry involved in the design, development, manufacture, marketing, and sale of motor vehicles. In 2006, more than 69 million motor vehicles, including cars and commercial vehicles were produced worldwide. should pay attention to Turkey. Manufacturing costs are comparable to CEE, but these costs will stay lower, as new EU members lead the world in pay increases above inflation. Turkey is not expected to join the EU for at least a decade, so real wage increases will not have the same drivers as in CEE. While Turkey is at a cost disadvantage compared to China or India, it enjoys a more strategic location, especially with respect to Europe. Another Turkish advantage over competing low cost regions is the regulatory environment, including intellectual property protections matching EU standards as well as more flexibility in terms of investments (JVs, etc.). Additionally, Turkish automotive quality is greater than other low cost regions and is competitive to high wage areas. For instance, Ford's profitable Turkish JV has been its highest quality operation in Europe for four straight years. Currently, nearly 150 suppliers have manufacturing operations Manufacturing operations concern the operation of a facility, as opposed to maintenance, supply and distribution, health, and safety, emergency response, human resources, security, information technology and other infrastructural support organizations. at international quality standards in Turkey. Turkey's cost advantages extend beyond manufacturing, as the country has a large, well-educated population. Automotive companies have already begun to take advantage of this. Since 1995, Turkey has been Fiat's third global R&D center, after Italy and Brazil. Furthermore, Ford has built up design and R&D capabilities to the extent that it can fully develop a vehicle in Turkey. Challenges Automotive investors still face various challenges in Turkey. The inflation rate, foreign exchange rates, and domestic demand all fluctuate greatly. However, these can be overcome by flexibility, hedging, and the correct mix of domestic and export business. Also, while Turkey is most suited to supply parts and cars to Europe and the Middle East, rather than NAFTA NAFTA in full North American Free Trade Agreement Trade pact signed by Canada, the U.S., and Mexico in 1992, which took effect in 1994. Inspired by the success of the European Community in reducing trade barriers among its members, NAFTA created the world's or Asia, even this could change as OEMs increasingly utilize global models, platforms, and components. Already, Ford will reportedly bring the Turkish-made Transit Connect to NAFTA in 2008. [GRAPHIC OMITTED] Turkey is not the largest emerging market, and it is not growing the fastest. It is not the lowest cost country, nor is it completely stable. However, its ideal mix of proximity, costs, size, growth, and quality make it a country that all global automotive companies should explore as a manufacturing hub and as an end market. erkut_uludag@us.rolandberger.com Erkut Uludag, Partner, Roland Berger Strategy Consultants Roland Berger Strategy Consultants is a strategy consultancy firm based in Europe and founded in 1967 in Munich. In 2005, their sales were approximately EUR 550 million. With 33 offices in 23 countries, the independent partnership is solely owned by its more than 130 partners. |
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