Clusters and Competitive Advantage The Turkish Experience_3 pptx

The clusters chosen were thefurniture cluster in Ankara, the towel and bathrobe cluster in Denizli, themachine-made carpet cluster in Gaziantep and the leather clothing cluster in Istanb

56 Clusters and Competitive Advantage

advantage created The main steps in the methodology employed are marized in Figure 3.4.18

sum-The qualitative analysis of the case studies is based on a review of the ture, secondary data analysis and in-depth interviews with cluster participants.The review of the literature provided information on the clusters’ historicaldevelopment and their main local players, as well as recent changes andchallenges faced by the cluster members Academic journals, governmentpublications, trade magazines, trade associations and local newspapers wereamongst the major sources Secondary data on given clusters provided suchinformation as a cluster’s size and growth over the years, its employmentspecialization, the distribution of each firm in the cluster by number ofemployees, the type and distribution of occupations in the cluster, and thecluster’s export and productivity performance

litera-A total of 72 in-depth interviews and numerous shorter ones wereconducted The interviewees were managers of firms, government officialsand other industry experts from organizations linked to the cluster (such asuniversities, sectoral associations, research centres and institutes) The inter-views were semistructured and took 1.5–2 hours, although some took aslong as 4–5 hours The respondents were asked for their overall evaluation

of the cluster, the reasons for geographic concentration and the possible

Analyse

industrial

statistics

Analysetradestatistics

Identifyinternationallycompetitiveindustries

Seek a statistical link betweengeographic concentration andcompetitiveness

Select and conductcluster case studies

Clarify the link betweengeographic concentration andcompetitiveness

contribution of attributes of the location to the international competitiveness

of the cluster The interviews were then transcribed and the main themeswere identified This information served as the basis for the reports prepared

on each of the cases studied The information derived from the interviews,the literature review and the secondary data were used to construct a clustermap for each cluster.19

Geographic clusters and competitiveness: which cases to study?

To understand the complex role that the attributes of the local environmentplay in shaping the competitive advantages of firms, a detailed analysis ofspecific clusters is needed Only a full analysis of the historical developmentand current structure of a cluster can reveal the true nature of the relationshipbetween geographic clustering and competitiveness This challenging taskwill be the subject of the next four chapters The clusters chosen were thefurniture cluster in Ankara, the towel and bathrobe cluster in Denizli, themachine-made carpet cluster in Gaziantep and the leather clothing cluster

in Istanbul

The furniture cluster in Ankara served as a pilot study, since my residentialproximity to this cluster made it much easier to go back and forth andreinterview many of the participants, and to revise the method of investigationaccordingly Although the cluster is one of the leading areas of economicactivity in Ankara and is highly concentrated geographically, its degree ofinternational competitiveness has remained low This is interesting in thatfurniture making is a traditional, labour-intensive industry and in this respect

it resembles many of the competitive clusters Given that there is an emphasis on competitive clusters in the literature and the relatively lesscompetitive ones are understudied, the furniture industry in Ankara makes

over-an ideal case for detailed study

The second case study was of the towel and bathrobe cluster in theAegean city of Denizli This choice was well justified given that this clusterwas arguably the one that brought the concept of geographic clusters to theattention of academics and policy makers in Turkey Its success in the worldmarket has attracted considerable attention A comprehensive analysis ofthat success and its resilience in the face of recent challenges at home andabroad can substantially improve our understanding of the relationshipbetween clustering and competitive advantage The process Denizli hasgone through is also different from that in other provinces with significanttextile industries, such as Tekirdag which owes most of its developmentimpetus to its geographical proximity to Istanbul and Western Europe.Moreover the public sector does not have much of a presence in Denizli,which has forced it to rely on its own capabilities Finally, the textile-town

of Denizli provides us with a natural and unique laboratory to investige the

58 Clusters and Competitive Advantage

geographic concentration of specific industries given that the impact oflocalization economies is very clear in this city in the absence of urbaniza-tion economies

The south-eastern city of Gaziantep’s success in several areas, includingmachine tools, carpets, yarn and pasta, has also attracted considerable atten-tion Of these the carpet cluster, with its high geographic concentration andrapidly improving export performance, deserves detailed analysis for tworeasons First a case study of this cluster will serve to reinforce the findingsobtained from the study of the equally successful towel and bathrobe cluster inDenizli Second, Gaziantep is not among the major historical carpet-weavingcentres in Turkey This adds another dimension to the study in the form of

an exploration of why and how the carpet cluster came to develop in thiscity rather than somewhere else (for instance in one of the traditional carpet-weaving centres in Anatolia) An additional reason for studying this cluster

is that it is located in south-eastern Turkey, an area otherwise associatedwith poor economic development Thus in addition to contributing to ourunderstanding of locational factors in competitiveness, this cluster study

is likely to provide valuable insights into regional economic developmentmore generally

Finally, the leather clothing cluster in Istanbul provides an opportunity toinvestigate a very interesting set of relations First, the nature of its link tointernational markets is different from that of many other clusters, giventhe important role assumed by the so-called ‘luggage trade’ in this cluster.Second, in response to recent changes in the business environment therehas been a shift in the strategic orientation of Istanbul’s leather producers,which provides interesting insights into the changing patterns of competitiveadvantage in clusters Third, within Istanbul there are two separate concen-trations of activity that are related to the cluster: production units andnetworks are concentrated in Tuzla on the Anatolian shore, and the salesand marketing functions are concentrated in the Laleli/Zeytinburnu districts

in the historical, European section of the city Such an interesting network

of relations merits special consideration The analysis of this cluster inChapter 7 also contains a discussion of the Istanbul economy in more generalterms, providing the reader with knowledge of the range of activities thatprevail in the economic capital of Turkey

In addition to the detailed studies outlined above, this book brieflydiscusses other clusters that exist in the cities examined, including theconstruction cluster in Ankara, the footwear, cutlery and marble clusters

in Denizli, the machinery cluster in Gaziantep, and the footwear, motionpicture and jewellery clusters in Istanbul

All the case studies presented in the following chapters have the samestructure Each chapter starts with an overview of the cluster, outlining itsgeneral characteristics and importance Next the origins of the cluster and

the key events in its history are presented This is followed by an investigation

of the cluster’s sources of competitive advantage/disadvantage, and then thespecific reasons for its geographic concentration in the area in question areidentified The concluding section discusses the future prospects of the cluster,given the preceding analysis

4

The Furniture Cluster in Ankara

In many industrialized countries the furniture sector accounts for about2–4 per cent of the production value of the manufacturing sector The EUfurniture industry is particularly strong, accounting for about half of theworld’s production Table 4.1 shows the market shares of the top ten exporters

of furniture (SITC 821) in 1991–2000 As can be seen, Italy had the highestshare with an impressive 17 per cent Moreover Italy maintained its leadingposition throughout the period, while the export share of the runner-up,Germany, dropped from 15 per cent to around 9 per cent The latter figurematched the US share, which remained fairly stable The share of Canada,

on the other hand, increased considerably in the second half of the 1990sand reached a significant 9 per cent The shares of the two other importantfurniture producers, France and Denmark, fell slightly, each stabilizing atabout 4 per cent Belgium and Luxemburg also suffered a gradual declinefrom 4.5 per cent to 3 per cent A similar market share (3 per cent) wascaptured by the United Kingdom, whose stake remained relatively stable.Meanwhile China and Poland emerged as new players and gradually increasedtheir shares to 8 per cent and 4 per cent respectively

The export performance of the Turkish furniture industry, on the otherhand, has not been particularly impressive Despite an increasing trend

in recent years, exports remain insignificant and the industry is mainlydomestically oriented The value of exports rose from about US$20 million

in 1990 to $180 million in 2000 Over the same period imports increasedfrom $25 million to $190 million

Turkey’s share of the world furniture market has remained at 0.2–0.3 per cent

in recent years, which is below the calculated cut-off rate of 0.52 per cent forthe Turkish manufacturing industry as a whole (Chapter 3), suggesting thatthe industry is not competitive in respect of SITC 821; that is, the generalcategory ‘furniture’ Turkey does, however, hold competitive positions insome of the subsections of the industry Of these, the export performance

of manufacturers of seats and convertible beds (SITC 82115), motor vehicleseats (SITC 82112) and mattresses of other materials (SITC 82125) was relatively

strong in 2000, with world export shares of 4.2 per cent, 3.8 per cent and

2 per cent respectively (ITC, 2002) The major export destinations are Germany,Israel, the Netherlands, France, Russia and the CIS countries, especiallyAzerbaijan, Kazakhstan and Turkmenistan In recent years exports to theBalkans in general and Greece in particular have also increased Italy, Germany,France, the United States, the United Kingdom and Spain, on the other hand,are the leading exporters of furniture to Turkey Within Turkey, the exportperformance of furniture manufacturers in Ankara is particularly weak,especially when compared with those in Istanbul and Bursa-Inegöl.1

The geographic concentration of furniture manufacturers in some EUcountries is striking German enterprises, for example, are concentrated

in three regions: North Rhine-Westphalia, Bavaria and Baden-Württemberg.Several districts in northern Italy are home to more than two thirds of thetotal number of furniture manufacturers and related employment in thecountry, with about 55 per cent being concentrated in the regions ofLombardy, Veneto and Tuscany In France the concentrations are in theOuest/Vendee/Bretagne, Ile-de-France, Rhone-Alpes and Normandy regions.Almost all Belgian furniture manufacturers are located in the western part ofthe Flemish region (Engels, 1999) Other well-known examples are Jutland

in Denmark and Smaland in Sweden, and, outside the EU, Sasaki in Japan(Erzurumluoglu, 1991)

As in the countries mentioned above, furniture manufacturing in Turkey

is highly localized, with Ankara, Istanbul, Izmir, Bursa and Kayseri being theleading centres (Table 4.2) Although the manufacturers in Istanbul haverecently replaced those in Ankara in terms of share of total employment

in the industry, the LQ for Ankara is much higher than that for Istanbul

Table 4.1 Market shares of the leading furniture exporting countries (per cent)

62 Clusters and Competitive Advantage

(2.57 and 0.85 respectively), indicating that in relative terms the industry is

much more localized in Ankara Indeed the firms in Ankara are

concen-trated in one district (Siteler) on the outskirts of the capital

Origins and historical developments

Ankara was once a significant centre of mohair production, and this was the

core economic activity in the city until the late nineteenth century and the

coming of the railway This enhanced the strategic location of the city and

attracted additional economic activities The main goods exported from Ankara

at the time were grain, mohair, grapes, honey, leather, carpets/rugs and

agricultural tools Interestingly, although there was little in the way of forestry

in the environs of Ankara, it appears that wood working was relatively

developed in the region (Önsoy, 1994) For example wooden looms for the

weaving of mohair were produced locally in the sixteenth and seventeenth

centuries, pointing to the existence of wood-related business activities

(Tuncer, 2001)

In fact the craft of furniture making has been practised in central Anatolia

for centuries Impressive exhibits of eighth century BC royal wooden furniture

Table 4.2 Provincial shares of employment in the Turkish furniture industry

(ISIC 3610) 1

Notes:

1 Top ten provinces in terms of share of national employment and LQ greater than one

2 Concentration ratios for the first four and eight provinces, respectively

Province Share of national employment in the sector (%) Location quotient

from Gordion, the ancient Phrygian capital, located near Ankara, are displayed

in the Museum of Anatolian Civilizations in Ankara (Simpson et al., 1992).

Much of the area’s historical magnificence was, however, lost over time, asevidenced by the way in which Major Robert Imbrie, a special representative

of the United States, described the Ankara of the early 1920s: ‘The shops aretiny affairs with the most primitive of stocks There is no bazaar worthy

of the name It is impossible to buy a chair, a table or a bed, or the simplesthousehold article.’ According to him, it seemed that ‘the swing of thependulum through the arch of centuries had brought little change to Angora’(Cross and Leiser, 2000, pp 143–4)

Despite historians’ bleak picture of the general economic situation inAnkara at that time, the city took on strategic importance – both politicallyand economically – when the newly established Turkish Republic declaredAnkara its capital in 1923, a decision that hardly received a warm welcome.Illustrative of this and the underdevelopment of Ankara is the fact that mostdiplomatic missions were reluctant to move from Istanbul to Ankara Forinstance it took the American ambassador more than 10 years to move hisresidence permanently from Istanbul to Ankara (ibid.)

The plan of the new Turkish government was to preserve the heart of oldAnkara and build a completely new city round it The transformation ofAnkara from a small, underdeveloped, Oriental town to a large Western-styled city and the consequent flurry of construction activity inevitablyinfluenced the structure of local industry and marked the emergence of tworelated sectors: construction and furniture.2 Towards the end of the 1920s,factories and workshops began to spring up around Akköprü, specializing

in ceramics, timber and furniture.3

A notable development in the 1950s was the relocation of small producersand tradesmen outside the city centre This started with the construction ofsmall industrial estates around Ankara, including Yeni Sanayi, BüyükSanayi, Ata Sanayi, Demir Sanayi and Keresteciler Sitesi Although a number

of industrial zones housed furniture firms and enterprises in related areas,one in particular, Siteler, is important for our purposes due to its currentlyhigh concentration of furniture manufacturers.4 Written and oral evidencesuggests that Siteler was established in the late 1950s by timber merchantswho, after a large fire, were encouraged to move from their central location

in Akköprü and Sogukkuyu to a more peripheral one, mainly because of therisk of fire but also due to the noise and pollution associated with theiractivities The head of the municipality in Ankara, Atif Benderlioglu, withthe support of Prime Minister Menderes, was highly instrumental in organ-izating this move About 60 acres of land were allocated to the purpose, andthe seeds of the subsequent furniture cluster were sown in Siteler by thearrival of the timber merchants In the following years more timber merchantsset up business in the district, and towards the end of the 1960s furnituremakers formed a subdistrict of their own Later the construction of residential

64 Clusters and Competitive Advantage

buildings began, and production activities gradually diffused into the newresidential areas, blurring the boundaries of the district Finally, the entry oflarger firms triggered a transformation in Siteler in that the emphasis on thelocal market shifted towards regional, national and even internationalmarkets, though to a lesser extent (Tekeli, 1994)

Very few final customers visited Siteler in the early years of its ment Rather they bought their furniture from retailers in the city centre,where the prices included a considerable mark-up Seeing the businesspotential in this, many furniture makers in Siteler set up showrooms often

develop-on the ground floor of their premises Thus Siteler was no ldevelop-onger just

a production centre but also a specialized shopping centre This proved veryprofitable for the furniture makers, especially given the fact that their rentswere much lower than those in the centre Moreover ‘the former workshopowner now acquired the status of a businessman who had an office in theshowroom’ (Hazar, 1983, p 17)

The success achieved by Siteler during these years resulted in nationwiderecognition of ‘made in Ankara’ furniture and a cosy life for the furnituremakers However they failed to channel their earnings into investments,and when similiar furniture districts began to emerge in other parts of thecountry, coupled with the liberalization of imports, they found it difficult

to sustain their dominant position since they had little export experienceand few contacts in international markets to turn to in order to fight thecompetition As a consequence the good reputation Siteler had built upover the years began to erode A prominent manager interviewed in thecourse of this study, whose company was amongst the first to move toSiteler, stated that what they dreamt of in the early days could not berealized They had envisaged that Siteler would come to be endowed withwell-functioning institutions, including sector-specific education andresearch institutions and even a forest of its own He thought that overtime the district’s highly skilled craftsmen had gradually been replaced bypeople who had the required capital but were not necessarily equippedwith sufficient skill This, in his view, had changed the nature of thedistrict ‘If it had developed as envisaged, Siteler would have been a leadingexport centre; but now only 10–15 firms are engaged in exports on a regularbasis’, he lamented

Siteler now occupies about 1250 acres of land According to the Small andMedium-Sized Industry Organization (KOSGEB), approximately 10000 firmsare active in furniture making and related businesses in Siteler The number

of workers employed by these enterprises is estimated to be around 100000.Although the cluster has managed to survive the recent challenges, Istanbulhas replaced Ankara as the leading location for furniture making and theexport performance of the cluster is still rather poor The following pagesexamine the reasons for this decline, which will enable us to comment onthe competitiveness of clusters more generally Before proceeding with this

analysis, however, we shall summarize the general economic outlook ofAnkara in order to put the situation of the furniture cluster into that context

As can be seen in Table 4.3, which shows the structure of Ankara’seconomy by economic activity and share of employment, the current structure

is quite similar to that observed historically: construction and related activities,

Table 4.3 Employment in Ankara, by economic activity 1

ISIC Sector

Location quotient

Ankara’s share of national employment

in the sectors (%)

8022 Technical and vocational secondary education 8.2230 77.33

4020 Manufacture of gas; distribution of gaseous fuels 5.6415 53.06

4520 Construction of buildings; civil engineering 4.2882 40.33

7010 Real estate activities with own or leased property 3.5444 33.33

2694 Manufacture of cement, lime and plaster 3.3328 31.34

2924 Manufacture of machinery for mining and

3000 Manufacture of office and computing machinery 2.5244 23.74

9219 Other entertainment activities n.e.c

(not elsewhere classified)

3311 Manufacture of medical and surgical equipment 2.3068 21.69

7310 Research on and experimental development of

NSE (Natural Sciences and Engineering)

5150 Wholesale of machinery, equipment and supplies 2.2110 20.79

6719 Activities auxiliary to financial intermediation n.e.c 2.1184 19.92

2925 Manufacture of machinery for food etc 2.0585 19.36

2699 Manufacture of other non-metallic mineral

products

2915 Manufacture of lifting and handling equipment 1.8827 17.71

2222 Service activities related to printing 1.8692 17.58

Table 4.3 (Continued)

ISIC Sector

Location quotient

Ankara’s share of national employment

in the sectors (%)

5141 Wholesale of solid, liquid and gaseous fuels, etc 1.8003 16.93

2212 Publishing of newspapers, journals and

3110 Manufacture of electric motors, generators etc 1.5355 14.44

5143 Wholesale of construction materials,

hardware etc

6021 Other scheduled passenger land transport 1.3871 13.05

5240 Retail sale of second-hand goods in shops 1.3704 12.89

2914 Manufacture of ovens, furnaces and furnace

burners

7020 Real estate activities on a fee or contractual

2913 Manufacture of bearings, gears and driving

elements

2320 Manufacture of refined petroleum products 1.2915 12.15

1544 Manufacture of macaroni, noodles, couscous

etc.

2929 Manufacture of other special purpose machinery 1.2840 12.08

2812 Manufacture of metal tanks, containers etc 1.2811 12.05

2101 Manufacture of pulp, paper and paperboard 1.2588 11.84

6720 Activities auxiliary to insurance and pension

funding

5030 Sale of motor vehicle parts and accessories 1.2043 11.33

the furniture industry, metal working and various services still dominate theeconomic landscape Although Ankara has experienced rapid growth as

a city, it cannot be said that industry has developed at the same pace On thecontrary, it is rather weak relative to the size of Ankara, especially as regardsfactory production However the service sector and commercial activitieshave prospered, reflecting the administrative character of the capital

Sources of international competitive advantage

Factor conditions

Although Turkey has an adequate supply of basic materials such as wood,chipboard, veneer, fittings and other inputs, good quality domestic inputsare not available in sufficient quantities and at competitive prices (KOSGEB,2000; TC Basbakanlik Dis Ticaret Müstesarligi, 1998) In addition to the factthat Turkey does not have an abundance of free species, Turkish wood is ofpoor quality Another barrier to the development of the furniture industry

is that locally produced intermediate goods such as metal accessories arelow-quality copies of European products (Er, 1994, pp 282–3) Hence firmsare left with little choice but to use imported inputs, and it has been estimatedthat about 75 per cent of inputs are imported (Sakarya, 2001) According to

Note:

1 Top 50 industries by share of national employment and LQ greater than one

2102 Manufacture of corrugated paper and paperboard 1.1941 11.23

8512 Medical and dental practice activities 1.1837 11.13

7412 Accounting and auditing activities; tax

consultancy

5219 Other retail sales in non-specialist stores 1.1380 10.70

2429 Manufacture of other chemical products n.e.c 1.1378 10.70

3140 Manufacture of accumulators, primary batteries

etc.

3230 Manufacture of television and radio receivers etc 1.1034 10.38

3220 Manufacture of television and radio

transmitters etc

5149 Wholesale of other intermediate products,

waste

2892 Treatment of metals; mechanical engineering 1.0865 10.22

2021 Manufacture of veneer sheets, plywood etc 1.0389 9.77

3190 Manufacture of other electrical equipment

n.e.c