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Spotlight | August 2016

India v/s Turkey

India and Turkey have their own advantages & disadvantages, says Raj Tilgul of Rama Dis Tic. ve Danismanlik Ltd, in an in-depth SWOT analysis of these two most important textile countries.

India and Turkey are one of the major textile producing and trading countries in the world. There is always a clash of interest as to who is going to export to whom and when, as Turkey is one way a competitor to India and on the other hand a buyer as well. Below is a detailed SWOT analysis and recommendations to both the countries or their trade associations in order to smoothen and develop sustainable trade relations.

Strengths

Diverse raw material base: India has abundant supply of cotton/ jute/ silk/ wool/ polyester/ viscose fibre as raw material. India with 5 million tonne is second in the world and also second in production in silk, jute and synthetic fibre like polyester. Turkey has no raw material base except cotton. None of the other raw material is produced in turkey except cotton which is about 400,000 tonne/year. Hardly any synthetic or artificial fibre is produced.

  • India has strong presence in textile value chain: It has all the available inputs of a textile industry like raw material, machine production (spinning, weaving, dyeing) dyes, colours, etc. India also has a major disadvantage of machinery as most of the machinery in spinning and weaving and knitting is imported form Europe. Whatever little production is in dyeing machinery.
  • Presence of strong institutional support: India’s textile industry is more corporatised and on a strong platform for fast growth. Many industries are well positioned with banks stock listed so that their financing needs are taken care for growth. India has a strong stock market almost equal to $1.4 trillion. Turkey’s textile industry is a cluster of family-managed companies. Very few stock listed have majority owner controlled. Most of the industry does not depend on too much banking finance. Most of the companies are owned by owners who believe in Islamic finance. This is a major drawback for faster growth. Most of the global giants have grown only after listing the companies in almost all the countries. Also Turkey has a small stock market ($300 billion as compared to a GDP of $800 billion) as compared to its GDP.
  • Weaknesses

    • India is technologically backward in textiles. Generally the technology drive comes through higher labour and energy costs. Because many inputs have remained lower in India for a long time, the weaving/knitting and dyeing industry has not been upgraded. Most of the cloth requirement in India was fulfilled by handlooms and shuttleless looms as symbol of socialist philosophy. The technology upgradation was not encouraged much. With changing times and modern citizens’ requirements, the industry has been modernising slowly. India has still only 2 per cent of the looms as shuttleless while global average is about 16 per cent (China: 15 per cent, Pakistan: 9 per cent, Indonesia: 9 per cent). Turkey on the other hand has one of the sophisticated spinning/weaving/knitting/dyeing and garmenting industries. With higher input costs, Turkey [however] could not afford to be on the back seat of technological advancement.
    • India has a low share of global exports as compared to many countries and even to Turkey. Mainly due to high internal demand and lack of downstream processing. Turkey has sizable exports and is the second biggest supplier of textiles to European Union and has a big advantage of closeness and seasonal market adaptability.
    • India-being the second biggest producer of cotton-has one of the lowest yields in the world. Mainly due to small land holdings, manual sowing and picking, etc., and one of the reason India cannot still produce contamination-free raw cotton as the US does. Turkey has similar weakness like India where its land holdings are relatively bigger than India. But they still lack mechanised cultivation techniques.

    Opportunities

    • India has promising domestic market with sizable growth and GDP numbers and demography
    • Turkey also boasts similar advantages with dynamic domestic market with good GDP growth and demography of young population.
    • India has no free access to markets like Europe and the US. Turkey has free access of goods into EU and also the US. With ATR form Turkish customs, authorities’ goods can have free access to Europe and vice versa. India has a big disadvantage with markets like Africa and Russia where the banking system in not in shape. Most of the Indian companies are corporatised as they work through well-defined banking channels. Turkey has advantages of agility and speed in terms of decision making and risk taken due to own managed companies and hence possibility to perform well in Africa and Russia. Also geographical and religious advantages of Africa/Middle east has been a trump card for Turkey.
    • India has a strong supportive policy regime for textiles with various incentives like capital subsidies, interest subsidies, energy subsidies, etc. in order to fulfill medium-skilled high volume employee base. Also it can do so by protected currency exchange regime of non-convertibility. Turkey on the verge of UE path and fully convertible currency has limitations in giving huge incentives to industries. Hence it can only afford tax benefits and regional incentives. While most of the industry is family owned or owner managed TAX benefits may not play very important role. Capital and interest subisidies definitely do.
    • Indian technical textile market though with huge potential has recently started picking up. With the concepts of hygiene and health picking up more and more the use of industrial textiles also picks up Turkey has well developed technical textile market interms of personal care (hygiene and personal care) while it still has large potential for technical textiles for industrial use. With its locational advantages to major technical textile and machinery producers it has big advantage of developing itself in to strong technical textile base.

    Threats

    • India and Turkey have similar threats of escalating raw material prices and inflation bringing down the purchase power of the people. India is better equipped to face such situation in terms of country’s better savings rates and low spending habits. While Turkey has one of the highest spending and lowest saving rates in its similar GDP countries will have severe problems with inflation and hence increasing cost of labour, energy, capital, etc.
    • India being far from Europe and the US and not associated with any organisational adherences (OECD, WTO, NATO, etc.) has less emphasis on environmental restrictions. Not so stringent social security regulations help the textile industries low margins to flourish. Turkey with its membership to many global organisations has strong restrictions on environmental compliance and social security regulations. Minimum wages of Turkey is that of almost half of country’s GDP (per capita income of $10,000 per year and minimum wages of $5,000 per year) will put big pressure on low margin industries like textiles.
    • India has a threat of preferential tariff regime as its not connected with any organizational grouping. Turkey enjoys many advantages in exports on preferential treatment to Europe/USA and many African countries.
    • India has no threat of access to any developed blocks. Turkey has risk of access to EU. Once it does so, the costs are going to up and drain on skilled employees and thus putting pressure on low margin high volume, labour-oriented industries like textiles. Entry in Europe is going to cause more harm than good to Turkish textile industry.

    Turkey should be focusing on:

    • Focus on domestic textile machinery industry: Turkey being geographically closely located to major machinery producing countries like Germany and Switzerland, and machinery being a value added product and requires better skills, has to be promoted aggressively.
    • Focus on value-added products, garments, colours, designs, collections, branding, logistics and any activity that has advantage of being closer to consumption base and focus on downstream process than upstream process. Upstream is definitely harmful to Turkey as it cannot compete with countries with economy of scale like India, China and the US unless it adheres to protectionist regime, which is harmful in the long run.
    • Technical textiles & innovations: Turkey is definitely more sophisticated industry in terms of technical textiles in the areas like hospitals, personal care, infrastructure, agriculture, industrial durables (like cords, nonwovens, automobiles, parachutes, infrastructural tents, etc.)
    • Turkey should clearly stay away from industry that requires economy of scale and high capital and unskilled labour and large raw material. Textile spinning, weaving & knitting industries are such industries where raw material and energy are the major share of the product. In spinning, it can never compete with countries like China and India where the spinning capacity is meant to convert almost all the raw cotton produced in the country. Turkey produces 3,00,000 tonnes of cotton, spins 1.5 million tonnes of yarn and imports 1 million tonnes of raw cotton from the USA, Greece, Australia. In such cases, machines and raw material and energy is imported. What is left for local content is only labour and that too unskilled mass labour. If at all Turkey has to have spinning then it should be restricted to the amount of raw material availability and should focus on value-added yarns like long staple, fine counts, organic and contamination-free cotton.
    • Turkey can have big advantage if it can convert all the cotton produced in the country to contamination-free cotton so that it is one-step ahead of India and also trade deficit on imports of contamination-free cotton from the US.
    • Special financing schemes and make avail of the working capital for upgrading technology and working capital financing. Turkish imposition of KKDV of 6 per cent on usance is a big drawback on financing of family-managed companies who lack working capital specially in a raw material-dominated industry like textiles. If the banks and stock markets are not ready to finance such unorganised industry, then one should allow them to have supplier credits at cheaper rates in USD/Euro so that they are competent in international markets. As there are low interest rate export policy there should also be import credit facility so that industry is able to finance itself. On the other hand, it’s not putting any restrictions on long term capital financing like HERMES (where exposure is for 5-10 years) and consumers credit to the banks in terms of installment buying (Turkey is the only country in the world that has 12-24-36 months installments on consumer goods). While it should discourage long-term foreign currency exposures and encourage short-term foreign currency exposures.
    • Turkey does not produce any polyester or viscose fibre or filament. Whatever it does is minuscule. And it should not try to produce as it does not have POY or polyester chips to produce polyester and doesn’t have or grow wood pulp for viscose fibre. In such case, it should make avail of these material from countries like China and India or Canada who can produce them more effectively than Turkey can do.
    • Industry should me made aware of existing incentive programmes so that everyone is aware of it. It should not remain the clout of few big industrialists.
    • Should establish a strong consulting and R&D profit division unlike TUBITAK where they take up practical technologies rather than laboratory developments and eager to shake hands with either western private companies or western academic institutions. Unfortunately most of the R&D institutions remain theoretical in Asian countries and their brainstorm is restricted to the R&D building.
    • Turkey should act in increasing its competitive advantages in growth of cotton. South of Turkey with similar weather conditions of Egypt should try to develop long staple cotton like South American SUPIMA and Indian SUVIN or Egyptian GIZA.
    • Turkey being a mediterranean country has typical amorphous skill levels like Greece, Italy and Spain that encourage artistic spirit of the human. While a nation building requires crystalline characters, where people are strong in science and math. Turkey to come out of poverty and sustain growing per capita GDP levels has to increase its crystalline skills to sustain increasing wages.
    • Textile is a low wage and high volume employment sector unlike hi-tech industries. Every industry has its own profit margins and its own wage levels. For example in textiles though polymer and yarn industry belong to textiles, polymer industry tends to be of more corporate nature and better wage giver always scores better for a developing country. In most of the developing countries the gini index, inequality of rich and poor has been on the rise. Within the country there is huge difference in per capita (Punjab and Haryana in India and Trakya and Van in Turkey) as the poorest parts of Turkey could be equal to richest parts of India or China. Hence the minimum wages in different areas should be different so that the low-paying industry automatically moves to poorer areas and thus creating employment rather than imposing barriers so that rich withing the country becomes richer and poor becomes poorer. As a thumb rule, minimum wages all over the world is about one third of the per capita income (America $7 per hour and 16000 per annum while per capita $50,000) and same applicable to many) while Turkey has minimum wages of almost 60 per cent of per capita. There is high pressure always to increase the minimum wages and hence Turkey has become a highly import-oriented country. But the government without trying to understand basic problems is trying to impose import duties to make things more expensive for low per capita income citizens.
    • Turkey is doing a big mistake by imposing dumping and non tariff barriers on cheaper products making the final products more expensive. With high petrol and diesel costs, Turkey is not competitive in raw material, agriculture and cotton. In addition, importing without duty for export purpose is another good strategy but harming the citizens buying power. Turkish citizens with $10,000 per capita should be able to buy products at a cheaper rate rather than the country with $50,000 per capita. On the contrary, the Turkish towel industry produces towels for local market with a yarn priced at $3 per kg while it exports towels with a yarn of $2 per kg. There should be a coherent strategy aimed at domestic industry’s growth but not at the expense of domestic purchasing power.

    Raj Tilgul has done his MTech from VJTI and has been associated with groups like Tolaram, Kewalram, Indorama, etc. He is now settled in Istanbul running his own business of yarn trading. He can be contacted at: tilgul@gmail.com.

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