With record exports in 2021, Turkey dreams of becoming the ‘world’s factory’ at the gates of Europe, helped by multinational companies seeking to bring production closer to their markets
There is a silver lining to the global supply chain crunch for Turkey: The country is becoming an attractive alternative at the gates of Europe for foreign firms.
Turkey is seizing its geographic advantage to woo companies as the skyrocketing cost of sea freight and pandemic-related disruptions to supply chains push some European companies to reduce their dependence on Asia.
President Recep Tayyip Erdoğan has promoted a new slogan for exports: “Made in Turkiye,” marketing products in Turkish instead of the internationally known “Made in Turkey.”
The country’s exports reached a record $225.4 billion (TL 3.07 trillion) last year, with a target of $300 billion set for 2023.
“Many international companies are taking action to supply more from Turkey,” Burak Dağlıoğlu, head of the presidency’s investment office, told Agence France-Presse (AFP).
He said the country offers automakers or textile companies a “competitive talent pool, sophisticated industrial competencies, well-developed services industries, perfect geographic location and state-of-the-art logistic infrastructure.”
Furniture retail company Ikea announced last year it wanted to move part of its production to Turkey.
The Italian clothing group Benetton told AFP it wants to “increase its production volumes in countries closer to Europe, including Turkey.”
Peter Wolters, vice-chairperson of the Netherlands-Turkey Chamber of Commerce, said the business group received “requests from the household and garden sector, textile and fashion and also yacht building industry who search for new partners in Turkey.”
Japanese electronics contractor Kaga Electronics is going to build a factory in Turkey, shifting a portion of the production from China and Southeast Asia, it also said back in December.
The company said it hopes to take advantage of Turkey’s strategic location and expand the Middle East and Europe orders. “Kaga hopes to leverage its new production base to win orders related to auto-related parts as well,” it said.
Soaring freight costs
It has become extremely expensive to ship goods from Asia.
As a result of container shortages, the cost of freight between China and northern Europe has increased ninefold since February 2020, according to the Freightos Baltic Index.
While a cargo ship can take weeks to travel from Asia to Europe, Turkey is only three days away by truck.
A study by the McKinsey consulting group published in November placed Turkey in the third position among countries with the best potential for textile supplies by 2025, behind Bangladesh and Vietnam but ahead of Indonesia and China.
“Apparel companies are also looking to change their sourcing-country mix … to secure the supply chain,” the global report’s authors wrote.
The report said Turkey offers “cheaper production costs due to a declining lira.”
The lira has fallen by 44% against the dollar since 2021.
Erdoğan has been endorsing a model based on lower borrowing costs, which he says will boost production, employment and exports, and also eventually help Turkey solve its chronic current account deficit problem and contribute to stabilizing the Turkish lira.
The declining lira is, however, problematic for several industries due to the country’s dependence on imports for energy and raw materials.
“It’s not like Russia, for example, which has extensive raw materials,” said Roger Kelly, leading regional economist covering Turkey and Russia at the European Bank for Reconstruction and Development (EBRD).
He said Turkey also faces competition from countries within the European Union.
“I don’t think we should ignore those countries in southeast Europe like Romania or Bulgaria, which are actually in the EU which helps them to a certain degree – and also have low production costs and strong production bases as well.”