By Gilles Valentin, Yaz Yazicioglu and Emmanuelle Berthemet
The construction sector of Turkey saw its destiny change when local companies decided, pressed by the conjuncture, to step outside of their home market.
The construction sector of Turkey saw its destiny change when local companies decided, pressed by the conjuncture, to step outside of their home market. Following a major development push in the 1960s and 1970s as well as the realisation of many military infrastructural works such as air force bases, shelters, harbors and training facilities built to NATO standards, the construction industry found itself short of projects and had to reach out to new markets for survival.
The internationalisation of the industry was done in four waves, all of them focusing on specific regions of the world. The first wave saw Turkish contractors venturing in Libya and Saudi Arabia. From 1972 onwards, Turkish companies helped the Libyans to develop their infrastructure, tap the country's hydrocarbon resources and enhance the living conditions of their population. Meanwhile, other Turkish companies were busy reaping the benefits of Saudi Arabia's spectacular wealth explosion following the energy shocks of 1974 and 1979.
Turkish companies built government and administrative buildings, key infrastructure like highways and airports, and developed their international competences in the process. The 1980s saw Turkish contractors expand their activities across the whole region, from Kuwait to Oman, and from Jordan to Egypt, Lebanon and Iraq.
The Iran-Iraq war, flattening of oil prices and the calamitous 1990-1991 Gulf War took their toll, and some of the Turkish companies faced bankruptcy, as Emin Sazak, CEO of Yuksel Insat recalls: "After the first Gulf war, in the turbulent aftermath of that conflict, we experienced huge problems there, being severely struck by payment delays: most of our competitors left; we lost money, but we decided to stay. This is one key element for us: we are usually in a country for the long run. We know that in the long term you should be ready and prepared to face ups and downs. Now, the strategy seems to have paid off: with the oil price skyrocketing and a new construction spree, we are enjoying the dividends of that choice. We couldn't be happier."
Equally, Mr Taskent, from STFA, shares some of the views expressed by Mr Sazak: "The vast opportunities after years of stagnation in Turkey had been very appetising, but the shortage of supply in major construction materials and some skilled labour have lead to increases in prices and longer delivery times for most of the contractors, putting the risk (which has not been fairly shared among the project stakeholders) on the contractors' shoulders.
Accelerated implementation schedules, allowing less inadequate preliminary studies at bidding and commencement stages, had introduced further risks for the contractors. However despite the specified and similar risks, which led to huge losses for many contractors and developers, it had been rewarding for the parties who were able to take and allow necessary measures to mitigate and share risks associated with the projects and thus their stakeholders."
Meanwhile, in Turkey, the internal market couldn't offer enough prospects to the industry and the situation turned desperate for many. The demise of the Soviet Union was going to offer the oxygen the sector was craving for. Feeling the potential, and using their commercial sense and know-how developed on the Middle Eastern markets, Turkish contractors started piling up contracts, and with the steep increase in wealth of Russia and the CIS countries, they suddenly found themselves at the centre of one of the fastest growing markets in the world.
Despite the Russian financial meltdown of 1998, Turkish companies stayed at the forefront of Russia's ‘reconstruction' and took a lead role into many landmark projects, like the complete renovation by ENKA of Moscow's ‘White House', the government's building and former parliament, after the major constitutional crisis of October 1993 left the building very badly damaged by tank and artillery shelling. Turkish companies also participated into the redevelopment of housing projects, military and security forces buildings, as well as many industrial refurbishment projects.
Today, Turkish contractors work in 63 countries, and generate a business volume abroad that has witnessed a spectacular growth over the past five years, from US $1.5 billion in 2002, to 9.3 billion in 2005, and that was expected to reach $12 billion in 2006 with a target of $15 billion for 2007.*
"In no other country of the world with similar per capita revenues like Turkey can you find a construction industry that is so well developed and so competitive abroad," stresses Haluk Buyukbas, secretary general, Turkish Contractors Association.
The last movement of internationalisation of the industry is still underway today, and has seen smaller players entering markets like northern Iraq after the country's invasion by the US, as well as post invasion Afghanistan, where 95% of construction work is done by Turkish companies. "We have clear competitive advantages," explains Burak Vardan, managing director, Cukurova Construction, a company notably involved in infrastructural work in today's Afghanistan.
"We have developed our international experience on a variety of markets, as subcontractors and lead contractors. Our teams are used to work in partnership with local or other international players, and the sophistication of our engineers and technicians rivals with that of any Western company. Only our costs are cheaper, and we have habits of flexibility and pragmatism that are widely appreciated by our clients. This makes a difference in tough terrain and dangerous environments like Afghanistan."
For Metis, a former military contractor, the move abroad has also been a successful one. Bedri Sever, the company's chairman of the Board, explains: "Half of our turnover is generated abroad and we think we'll have less and less activities in Turkey and will be more and more exposed abroad." Following a typical pattern for the industry, the company went from defense procurement into civilian work, and is notably involved in the pharaonic Libyan project of ‘great man-made river', which should become the world's largest irrigation infrastructure project.
At the same time, while Libya is still a destination of choice, traditional French preserves like Algeria, Morocco and Tunisia have witnessed the arrival of Turkish teams, carried by their experience and price competitiveness.
Indeed, Turkish companies have been spreading across the world, and are now part into very high-end projects. The transformation of the industry is going to bring it to the next stage of growth. The continuing diversification of markets and market segments will push Turkish companies, like the rest of the industry worldwide into a redefinition of their strategic directions and goals. Companies will move more and more from a position of mere contractors into investors, like has been the case in Russia and the CIS for several leading companies like ENKA and Koray Insaat, who have turned into property developers in the fast rising property markets of Moscow, Astana and Kiev.
Turkish contractors will also increasingly move into sophisticated projects. Take for instance Yapi Merkezi, today working on the $3.5 billion project of Dubai Metro system, alongside with Japan's Obayashi and Kajima Corporations. They will also boost up the development of recognised specialist brands like TAV, now a strong name for airport construction and one of the contractors in the construction of the New Doha International Airport (NDIA) in Qatar.
Multi specialists like Yuksel Insaat will concentrate on higher revenue segments. Being involved in the Doha Airport project as a subcontractor for Bechtel, the company has been a successful bidder for a motorway project in Dubai and is strengthening its name as an infrastructure player, while keeping its eyes on the region's many housing needs to find niche projects where it can utilise its competences. Specialisation will be essential for most.
The Turkish construction sector has found its good fortune, and its growth path, outside of Turkey. Facing many upheavals, and having to cope with turbulent environments, Turkish companies have built their reputations as real risk-takers while being competitive with their lower costs and speed of execution, in all types of environments. Now facing a rise in costs, and a seriously competitive environment, the industry faces the need to redefine its priorities. Higher value projects, specialisation and branding will help the construction industry to move to the next stage of development. Critical mass has been achieved thanks to the extensive international exposure of the last three decades, with 20 Turkish companies listed in the top 225 players.
In turn, Turkish construction players have evolved into ideal partners, balancing experience with flexibility, know-how with risk-litigation experience. International partnering and possible business consolidation on the global stage should offer opportunities to the industry to move into the next stage of development, and evolve from a family-driven industry into a sector driven by professional managers, taking advantage of the many global market opportunities and of the wealth of experience cumulated under many of the world's skies.
*Source: YEM, Construction Industry Center, Turkish Construction Sector Report, 2006