By Gilles Valentin, Yaz Yazicioglu and Emmanuelle Berthemet
With over $15 billion of revenue in 2005, the construction sector is an essential locomotive for Turkey's economy.
With over $15 billion of revenue in 2005, the construction sector is an essential locomotive for Turkey's economy. Besides providing direct employment to well over one million workers, it also fuels the success of many associated industry, which have in turn developed world-class capabilities. One of the most traditional sectors that has turned industrial and global is natural stone production.
The country happens to be blessed with up to 40% of the world's marble reserves, and has developed a reputation that makes it one of the key competitors of Italy, Spain or Iran. The quality of Turkish stones, in particular the white Onyx and cream-colored Travertine, have conquered market shares worldwide and the industry has developed from family-size quarries into multi-million dollar exporters reaching worldwide markets, from the US through to Russia, China and Japan.
The industry has also, like the overall construction sector, faced difficult years and many smaller players have disappeared. Yet, today, a few strong companies have emerged and are investing heavily in their development. Tem-Mer has invested into a brand new factory in Afyon, using state-of-the-art cutting techniques and expects to utilise its 1.5 million m² of production capacity for world markets demand.
"We are confident in the market opportunities out there. Turkey's stones have achieved a high level of recognition for the quality of their colours and patterns. Now, with our investment, we want to work on the next stage: the recognition of the country's quality of production and service standards."
Meanwhile, family-controlled Altintas or Aksoylar are also stepping into the 21st century, working on customer services and always on the look out to improve quality. "China is a key market for us today", explains Hakki Kan, president, Altintas. "But the competitive threat from places likes India or Iran are relatively new to us. So our quality alone cannot win all the time, and we have to stay on top of our competitiveness too." Another upcoming player, Plato marbles, has built a brand new head office with a large showroom to be able to appeal to a wider range of customers. Yet, the company's primary target market remains China. "The Olympics in Beijing are generating a considerable need in high quality materials. Marble remains the best natural stone available for many types of venues," explains Kazim Buyukguçlu, the company's head. Asked if the Middle East and the Gulf represent a large potential for Turkish stone producers, most of reply positively, despite local tastes that tend not to favour Turkish stones, except for the very superior range qualities, like Onyx and other pure whites and despite the distraction of other more obvious markets, like Russia and the CIS countries, as well as the new Chinese Eldorado.
Yet, all marble producers are convinced that the potential to be unlocked in the Gulf markets is still huge, and that the region will become more and more of a focus in the years ahead. Local alliances with distributors will be sought, and all the Turkish producers ought to be actively looking for partnerships, from Dubai to Saudi Arabia.
Piping wealth in
Steel producers of Turkey have been instrumental in the development of the local construction industry. Producers of reinforcement bars, billets, angles and others have provided the backbone of the industry and have also followed the construction companies in their forays abroad.
After having successfully fended off the Ukrainian competition, albeit by buying some of its supplies there, the Turkish iron and steel industry has been successful in finding a place under the sun, notably by striking export deals all the way to the Gulf region. Today, some of the acquired positions are under threats from Chinese, Indian or even Ukrainian competition, in particular in the highly competitive rebar segment. After years of what was almost a monopoly over the Gulf markets in particular, Turkish companies may pay a hefty price, despite the recognised quality of their products and their proximity to Middle-Eastern markets.
For other specialty products makers, the future might be rosier. Leading steel pipe maker Borusan Manessmann is a point in case. Born out of a joint venture between German pipe maker Manesmann and local Turkish steel pipe maker Borusan, the alliance was blessed from the onset, and the company is today the obvious market leader in Turkey while ranking among the top five European wielded steel pipe makers.
Also a producer of steel profiles for the construction industry, the company has grown alongside Turkey and the country's infrastructural development and renewal. It also made a name on the global markets by participating into very high profile projects such as the Baku Tbilisi Ceyhan pipeline (BTC), the Shah Deniz project (both proving that the use of spiral-wielded pipes was a viable technical solution for petroleum transportation). When asked about international priorities, the company's CEO's answer is two-fold:
"We have a new vision which is to become a one billion dollar company by 2010. This means that we'll be looking at doubling our production by means of organic growth and investment, acquisitions, joint ventures and strategic alliances. Part of it could be here in Turkey but we are also looking at Central Asia, Kazakhstan, Uzbekistan and Turkmenistan as well as North Africa, as these places combine interest as markets and potential production bases."
Tayfun Iseri, however, keeps an eye on the Middle-East and the Gulf markets, as he sees much potential to be unlocked over there too. "This region is very important as there is not only the oil and gas industry commanding sales but also the construction industry using a lot of piping material. We are looking at doubling our market capacity in this region in the two years to come and will be looking for suitable partners over there. And based on the 50 years-plus that this company has in production, we could be looking at opportunities for manufacturing in these regions too." Here again, the Chinese competitive threat is a possibility, but lures further on the horizon, as Borusan Manesmann is a producer of high end products, as opposed to rebar producers, facing a commodity price erosion competitive threat.
And indeed, this is where Turkey might have a winning card to play. Having fed the demanding markets of Europe, the increasingly sophisticated needs of Russia and the CIS countries while coping with the fast evolution in standards and markets expectations at home, the Turkish companies have also developed a sense of market pragmatism that goes well with their natural financial pragmatism, meant to cope with periodical economic upheaval.
"Turkish companies have learned a lot in a very limited amount of time. There has been no state protection, no cuddly protected markets and many segments of the industry have been thrown into the deep end before learning to swim," recalls Samet Samedi, general manager of piping systems manufacturer, VESBO. "This might explain the resilience of not only the construction industry and its associated sectors, but also other manufacturing areas that are facing the full blow of Asian competition, like the textile industry."
Cementing the growth
Turkish cement makers, despite the occasional slowdowns, have been thriving. Since the 1960's and the acceleration of the urbanisation of the Turkish population, demand has been solid, and cement manufacturers have expanded their capacities to the point of making Turkey one of Europe's largest cement producers and the world's second largest exporter. Following the recent expansion of the construction industry in Turkey, the cement production has expanded rapidly, growing from 29.5 to 36.4 million tonnes of clinker between 2002 and 2005 and from 32.7 to 41.7 million tonnes of cement over the same period*. Should the production follow this growth pattern and Turkey could well be producing 50 million tonnes of cement as early as 2008. Both the strength of the domestic market and Turkey's privileged location for export sales have attracted global players keen to get a slice of the action.
Heidelberg Cement is in a joint venture with local conglomerate Sabanci group for years, and the two have been leading the pack through their company Akcansa. Lafarge has been present in Turkey since 1989, entering partnerships with some of the 58 cement factories of Turkey. Portugal's Cimpor has recently announced plans to build a new $100 million factory in Ankara.
Meanwhile, local players are also doing very well out of the positive trend of the last years. Nuh Cimento, the largest purely local company has the largest production capacity under a single roof and is also expanding, with the completion of a fourth cement mill that will reach a 320t/h capacity.
This new clinker and grinding capacity means that Nuh Cimento is well poised to remain the leading producer in Turkey. "We are in a rather good position, with a fully integrated operation, from raw materials through to our own export harbor and a direct railway connection. But we remain wary of new capacity entering the Turkish markets," cautions Atalay Sahinoglu, the company's chairman. "This is why we also have a stake in grinding capacity in Spain, alongside with our partner Lafarge. This, besides helping us to have a flexible market supply policy, allows us to keep an eye on the West European markets too."
Here again, asked about the Gulf and Middle East potential, Mr Sahinoglu sees potential well beyond the traditional market penetration of Turkish companies in places like Iraq. "Our outlook is global: our competitors are world-class players, our facilities are world-class quality and we have world-class ambitions. The Gulf and the Middle East being host to some of the world's most exciting projects and holding great potential for future growth, we keep our eyes on the region too."
Besides the Turkish home market, Central Asia is one of the most promising areas, with Kazakhstan on many people's minds. North Africa remains a strong market and Russia and Ukraine have made the fortune of many Turkish companies selling construction materials to their fellow contractors involved in last decades' multi-million to billion dollar projects.
But it is the Gulf region that excites the imagination and represents a very large near-future opportunity. The market is one thing, and the many ambitious projects announced in Abu Dhabi, Qatar or Oman should benefit to some of Turkey's key suppliers of construction materials. Yet, the area where the future might be holding the most potential is in the successful association of Gulf companies, their access to capital and production factors, with Turkish companies and their extensive know-how, production and commercial experience and will to succeed. Perfect marriages might just be around the corner.
*Source: YEM, Construction Industry Center, Turkish Construction Sector Report, 2006