Leather industry is one of the taking sector of the Turkish economic system in footings of industrial production and employment. The portion of the sector in the state ‘s entire industrial production is 2,2 % , and has the portion of 1,5 in the entire fabrication labour force and 1,6 in the Turkish entire export net incomes. This paper analysis the competitiveness degree of Turkish leather sector by utilizing Porter ‘s diamond theoretical account. It is determined the current province, fight degree and explained chief characteristics of competitiveness construction of industry, besides, a figure of competitory schemes suggested. to accomplish the research intent, secondary and primary research aggregation methods ( in deepness interviews, semi-structured questionnaire, and adept sentiment ) were used.
The leather industry is one the oldest industries known to mankind. Particularly, leather appeared as an highly of import natural stuff required in every country in the civilisations of the universe particularly in Mesopotamia. Our earliest ascendants used teguments to protect their organic structure, custodies and pess. Leather is made from the tegument of any animate being, cow, sheep, caprine animal, camel, reptilian, bird or angle through a procedure known as tanning. This procedure preserves the tegument which would otherwise rapidly putrefy or decay. Today the leather industry is scientifically based. Research is continually carried out to guarantee the merchandise is improved utilizing the latest engineering to run into modern twenty-four hours demands.
Developed states started to discontinue the leather processing industry since 1970s because of the emerging environment pollution, extra H2O ingestion in the industry, turning production, and turning labour cost. Due to the turning figure of low cost leather imports to these states, their turning figure of environment protection ordinances, and high cost, they have started to go forth the sector. After the 2nd portion of 1980s with the separation of the Soviet Union and the Eastern Block, and turning importance and enlargement of market economic system caused balances in the leather trade and leather industry alteration. Consequently, leather production centre started to go forth Europe and enter to the East. Especially, China, due to low labour cost, and input cost advantages, is good known as the leader in the shoe sector with its export about 19 billion dollars. India, Brazil, Indonesia, Italy, Mexico, Thailand, Pakistan, and Turkey follow China, which is the largest manufacturer and exporter of the sector keeping the 50 % portion ( ITKIB, 2005 ) .
Historical Development of Turkish Leather Sector
Leather industry, which has been held by Turks dominantly since the fifteenth century, became one of the most of import sectors of Turkey in the 2nd half of twentieth century. Although roots of the leather industry are really old and of long standing, the industry was a work subdivision which descended from male parent to son keeping the guild feature in the really first old ages of the Republic. However, the leather industry has come through some alterations due to changing inducement and supportive policies due to development plans. Operative consequence of the State in the leather industry has started with the foundation of Sumerbank, tanning operations and shoe production has become major activities of the sector for long old ages. The portion of private endeavors has started to turn due to the application of a more broad and private-sector focused development and trade policy in Turkey since 1950, and it has reached to its extremum point, 100 % , at the present twenty-four hours ( Dellal ve A-zudoAYru, 2003 ) .
Raw leather, which is the chief entry of the leather industry, had been one of the basic elements of Turkish exports up to 1960s. Up to these old ages, 70 % of the bing capacity has been exported as both natural leather and semi-product. Following old ages after 1960 natural material demand increased parallel to the development of the sector, and 100 % of the bing leather production was used in the industry. Later on domestic natural leather supply fell abruptly for the demand, therefore the import started. On the other side, since 1985 natural leather export has taken portion in “ merchandises capable to permission list ” , and limitations were imposed for the farm animal export ( KuAYcu, 1996 ) . Since 1990s, the composing of leather import has besides diversified. In this period of import portions in entire import was taken by processed leather industry, natural leather industry, and the shoe industry took, severally. Low portions of leather ready-wear and stable gear industry were notable. Turkish leather industry import depends on the natural leather based on ready-wear entry. After 1980, raw leather demand increased due to the addition in leather ready-wear industry merchandise export. Because of deficient supply of domestic natural leather, export increased. Raw stuff cost of the sector increased particularly because of the production fluctuations of different causes in exporting states ( Uysal, 2002: 676 ) . In fact, one of Turkey ‘s most of import sectors, the leather, has been termed with Russian market refering export and employment whereas Turkish leather industry took topographic point non merely in Russia and Commonwealth of Independent States but besides in universe markets through 95 % export construction and 1 billion dollars of formal export gross in 2003. In this regard, leather and leather merchandise industry have sustained its development quickly since the last 15 old ages, and have achieved to incorporate into international markets through realizing important sum of export by utilizing a important sum of imported resources besides domestic natural leather resources.
In drumhead, leather and leather merchandise industry have sustained its development quickly for the last 15 old ages, and have achieved to incorporate into international markets through realizing important sum of export by utilizing a production capacity increased in important rate. Technological promotion, which is a must for a competitory industry, is turning quickly and the Turkish leather sector has reached the point that it now exports its ain engineering. Turkey can now bring forth all the machinery and the most of the chemicals which it needs for leather devising and export them every bit good. Leather makers are chiefly located in A°stanbul ( Tuzla ) , A°zmir ( Menemen ) , Corlu, UAYak, Denizli, Gerede, Bursa, Gonen, Manisa, Bor and Kula. Zeytinburnu ( A°stanbul ) is considered the most of import production and trade Centre for the Turkish leather garment industry ( BektaAY , 2006 ) .
Diamond Model Approach for International Competitiveness Analysis
In 1990, Porter developed Diamond Model while explicating why some states are more competitory than others are. The theoretical account analyzes constituents of the planetary competition in a systematical model in order to present the indexs of national competitory advantage ( Bulu, Eraslan and Kaya, 2006 ) . Diamond Model besides embodies a sector ‘s entire competitiveness place. Classical economic sciences theories identify the factor pools such as national district, natural resources, and population that can be delivered to prosperity, as the indexs of comparative advantage. It is besides non sufficient to simply undertake macroeconomics variables, low-cost or intensive labour force, province policies, or direction techniques as the index of competitory advantage in order to achieve the accurate consequence. Porter has focused on specific industries to achieve a more valid paradigm, and conveyed that, fight is affected by the factors mentioned above. However, he besides underlined that in some state of affairss those factors might suppress sustainable growing if they are abundant. Porter asserted that states could organize their ain advanced factor pools such as well-qualified labour force, powerful engineering, cognition, and civilization, and he added that this is the instance for specialised conditions ( Porter, 1990 ; Neven and Droge, 2001:4-5 ; Bulu et al. , 2004: 4 ) . Those factors, which play primary function in the preparation of comparative advantage, can be developed or can be changed parallel to policies applied, technological developments, or cultural developments. On the other side, Porter argues that factors that are unfastened to general use such as any house can derive unskilled labour, natural stuff, and that those houses were non able to hold competitory advantage refering these characteristics.
The theoretical account designed like a diamond defined four factors impacting the competitory advantage. These basic variables are factor conditions, house scheme, and competition construction, demand conditions, and related and back uping industries, each placed in a corner of the diamond. State takes topographic point in the theoretical account as another variable impacting other four variables pro-actively. Diamond Model placing the competitory advantage introduces a system ; hence, basic variables non one by one but jointly place the competitory advantage. In other words, factors placed on each corner of the diamond, affect each other. Therefore system acts like a dynamic construction ( Bulu, Eraslan and Kay. , 2006 ) . State impacts four factors externally ; hence there exists internal interaction connexion in 12 waies, and four external interaction connexions consequence degree between these interaction connexions, and consequence grade between interaction connexions and the theoretical account as a whole vary from part to part or from house to tauten. Diamond theoretical account is applied for the intent of placing the competitory places of sectors and states by stand foring the consequence of one factor on the other three factors ( Bulu, Eraslan and Kaya, 2006 ) .
Demand conditions affect the fight of houses by bespeaking new inventions. Besides high demand degree brings economic systems of scale advantage to houses. A powerful demand construction, which is non contented with the go outing conditions and which is diversified enforce houses to bring forth new merchandises and to prosecute alterations. By the manner, the Highness of measure and the quality of domestic demand bring in regional houses competitory advantage in planetary markets. Harmonizing to Porter, if domestic demand signals houses right about the construction of the future demand, states or national houses can derive competitory advantage by feeling the said signals before foreign companies.
Sufficiency and the competitiveness degree of related and back uping industries affect straight the competitory advantage of houses. A globally successful sector may transport another related sector to planetary success. For case, Italy non merely possesses a good leather and shoe industry but besides possesses a good leather processing machines sector. A competitory supply concatenation may organize competitory advantage by providing low cost and advanced inputs. In sectors within horizontal and perpendicular connexions, exchange of information brings in invention and exchange of thoughts.
With the house scheme and the construction of competition, Porter treats establishment formats of houses, organisation construction, civil orders, and national fight. While civil orders of houses affect the house scheme straight, it has positive or negative effects upon the civil orders of civilizations, organisation construction, house dealingss, etc. The construction of national competition is closely related to planetary fight. Harmonizing to Porter, even though houses perceive low competition as an advantage, a qualified regional competition prepares houses for the planetary competition by implementing them to innovative and travel beyond economical installations.
State, moving as an external dimension impacting those four factors, plays a major function in formation of comparative advantage. State affects these four factors through applications such as changing criterions development, and forestalling monopolies ( Porter, 1990 ; A-z and Pamuksuz, 2003: 3 ) . In the Diamond Model of Porter, the whole system is defined as a quite dynamic procedure in which positive and negative interactions occur. In this procedure, competitory advantages are related to reclamations and the velocity of inventions. The instance of being good for an consequence emanating from a clincher is related to the status of that clincher. Every factor is affected positive in instance that factor assesses the consequence reflecting to its ain. Emergence of a big and common interaction is related to making and denseness of interactions in the whole system. While merely one factor is by and large deficient, presence of a dynamic and competitory media with new information, capablenesss, and participants, brings in planetary competitory advantage ( Erkan and Erkan, 1994: 360 ) . In drumhead, theoretical account is a convenient and an of import tool to analyse fight in sector degree. In this regard, by the Diamond Model, it is possible to determine how leather industry is convenient to derive national competitory advantage depending on these four factors. When the Diamond Model is analyzed in item, the theoretical account enables us to find which of these basic factors and their bomber variables are weak, and which are strong. This procedure leads the research worker to find to develop further which of these basic factors and/or these variables. In other words, by the Diamond Model, the competitory place of the sector is identified therefore it will be possible to propose schemes upon the export ability and the capacity of the sector.
Methodology of Research
The purpose of the survey is to place the competitory place of Turkish leather industry by utilizing the Diamond Model of Porter. In other words, the competitory place of Turkish leather industry is analyzed with Diamond Model. To achieve the consequences of the survey, primary and secondary research methods are used.
Data Collection Method
In this survey, primary informations aggregation method is used together with secondary informations aggregation method. In-depth interview and study are two techniques used as primary informations aggregation methods. Besides sectoral informations were collected from assorted beginnings such as sectoral studies, etc. as secondary beginning.
In-depth interview method was applied to sector directors and members of related non-governmental organisations, and to determination shapers in the visible radiation of findings in the literature reappraisal. In order to forestall directing the applier, and to achieve the information wholly and right, interviews were held in a gabby environment.
Another information aggregation method used in the survey is study. Survey is an of import tool to garner fast, dependable and a systematic information. Questions asked in the study was designed as structured inquiries, semi-structured inquiries, and unstructured inquiries. Structured inquiries were prepared in visible radiation of basic factors and sub variables of the Diamond Model. With the unstructured inquiries of study, thoughts and positions of the individual related to the sector were asked. Survey inquiries were applied to chief participants of the sector ( related NGO leaders and members, functionaries of related public organic structures, determination shapers, enterprisers, and experts ) . Applicants were determined by utilizing secondary informations and advices of other appliers. While some studies were applied face to face, some were applied through the e-mail. As the secondary informations aggregation method, written and ocular resources ( sectoral studies, records of organisations, related cyberspace resources, scientific articles, house catalogs of related non-governmental organisations and of public organic structures ) were investigated.
Data Analysis Method
The Diamond Model, developed by Michael Porter, was used to place the regional fight of Turkish leather industry. In the application, factors related to sector were analyzed in the visible radiation of factors of the Diamond Model.
All basic factors ( factor conditions, demand status, related and back uping industries, and house scheme and competition construction ) were divided into sub factors, and informations gathered from the survey were compared with international fight benchmark. In this regard, each factor was rated: low ( – ) , medium ( -/+ ) , and high ( + ) .
After finding degrees of all factors, the same methodological analysis was applied to uncover the competitiveness place of the sector. Operative effects for the fight degrees of factors affect the consequence.
Competitiveness Analysis of Turkish Leather Sector by Diamond Model
Datas gathered through primary and secondary informations aggregation methods were evaluated harmonizing to degree of significance ( -/+ ) mentioned above, and so sub factors were located in Figure 1 as seen below.
Figure 1: Competitiveness Analysis of Istanbul Leather Sector
Natural Material: For the domestic production of natural leather, which is the basic input of the leather sector, is non sufficient, natural and semi-processed leather demand is supplied through import. In Turkey, leather gathered from cutting animate beings constitutes 40 % of processed leather. Residual 60 % is supplied through import. 46 % of great cowss leather and 75 % of little cowss leather is presumptively supplied through import. The ground why the sector depends on import so much is the deficient domestic supply refering both sum and quality. A important sum of natural leather and semi-processed leather is imported from EU states.
Labor: Turkey is an advantageous state in footings of skilled and unskilled labour ( Engineer, ace, chief, intermediate labour, etc. )
Technology: Sector is sufficiently advanced in footings of engineering. Especially advancement on leather processing technique enables the sector to export the engineering ; nevertheless, Turkish leather treating engineering is still follower.
Geographic Position: Sector possesses the advantage of geographical place in footings of input and end product ( selling ) . Notably, while geographically closeness to seaports simplicities natural stuff supply, geographically closeness to Europe, Russia, and other states eases selling processs.
Firm Strategy and Rivalry Structure
SME Type of Structuring: Notably, leather ready-wear sector is structured as SMEs. A major portion of the sector is located in Istanbul, and there are 1.700 enrolled members in Istanbul Chamber of Industry, 3180 enrolled members in Umum Saraclar Odasi, and there are 90 enrolled houses in Saraciye Sanayicileri DerneAYi. However, there are more than 500 houses throughout Turkey which is non enrolled to any organisation or chamber ( Dunya, 2004 ) . Management construction of SMEs brings in dynamism to houses, and sectors ( indirectly ) in footings of decision-making and innovativeness. Most of the houses in the sector are SMEs, provided that houses viing in the sector experience trouble in supplying the necessary support for R & A ; D which is an of import component for competition power.
Family Businesses and Professionalism: In effect of high figure of household concerns in the sector, the sector can non professionalise. These sorts of houses are non institutionalized ; so they are non able to use professionals ; hence, they get weak at strategic points such as profitableness, fiscal construction, end product development and invention & A ; distinction while the household connexions bring flexibleness.
Manner, Design, and Branding: Turkish leather ready-wear manufacturers find credence all over the universe through the quality they possess, provided that it is non the instance for stigmatization. Both high cost of branding investing, and use of foreign trade names for exports to Europe are the chief obstructions for the instance of stigmatization.
Domestic Demand: Because national population is about 70 million, and about half of the population consists of immature people, Turkey stands as a important market. Annual addition of GNP increases the outgo per individual. Nevertheless, the clime, and geographical construction of our state prevents end users utilizing leather ( as a ready-wear ) during all four seasons.
Foreign Demand: 95 % of the sector production is exported bespeaking that the sector is focused on foreign demand. Since the decomposition of the Soviet Union in 1990s, leather ready-wear sector has advanced in the part. Sector is the biggest provider of Russia ; hence, sector is dependent on Russia mostly. Even a small crisis in Russia or political determinations made by Russian authorities affects the sector. The ground why Russian market is attractive for the leather sector is Russian purchasers shopping with hard currency money. Furthermore, the appropriate clime of Russia makes the addition in demand executable.
Related and Supporting Industries
Industrial Zones: Because of usage operations, the natural leather requires and negative relation between environment and procedures, houses viing in the sector are obliged to run in industrial zones. Istanbul Tuzla Industrial Zone and Istanbul Corlu Industrial Zone are perceived as two of import centres. Formal information indicate that there are 13 leather industrial zones in Turkey, nevertheless, in effect of deficient supply in all over the universe to run all of these industrial zones, a part of them are known to work with idle capacity. On the other manus, because of environment force per unit area in Europe, states such as France, Italy, and Spain drawback from tannery concern, and Turkey has tried to make full the spread. Therefore, leather industrial zones with function theoretical account intervention installations were built, and demands were supplied through replacing the newest engineering.
Logisticss: Logisticss, which plays a critical function in the transit of merchandise to market, is at an acceptable degree in the most of import capital of the sector, in Istanbul. Especially, land conveyance is the most of import protagonist for European market. Besides, export to states along the Black Sea is done easy through sea lane.
Abattoirs: Sector industrialists underline the fact that high quality natural stuff is required to bring forth high quality merchandises, and they highlight the low quality of natural leather supplied from domestic market. Industrialists express that large farm lands should be established with the supervising of a veterinary in order to supply high quality leather. It is besides indicated that there must be slaughtering criterions, and those farm lands must be kept under review. Furthermore, jobs in the storage of leather occur, and this procedure has non been standardized, yet.
Activities of Non-Governmental Organizations: The figure of NGOs related to leather and leather ready wear sector is sufficient. The motion of Turkish Leather Council of IDMIB in 2005 brought in activity to the sector, even, celebrated people ( celebrated people from media, field of art, concern universe, and a curate ) out of sector has supported the creative activity of synergism in the sector by fall ining the motion voluntarily.
Collaboration with Universities: As is the instance in many other sectors in our state, there is no important coaction between leather industry and universities/other academic organisations. Especially universities with customized sections providing the qualified labour force of sector do non be. There are non besides sector-focused sections that may carry on R & A ; D activities.
Social Security Payments: In Turkey, the portion of employment revenue enhancement rate in cost of an employer is about 41 % . This rate is 21,2 % in USA, and 16,2 % in Japan. The state of affairs causes houses lose competition power, and pushes houses to be unregistered. When societal security payments are taken into history every bit good, an employee working in Istanbul with minimal pay, cost employer about 829, 49 YTL.
Tax Ratess: The ordinance refering decrease in highly high corporation revenue enhancement ( from 30 % to 20 % ) is perceived as an of import advancement for the sector.
Decision and Suggestions
Processed leather, leather merchandises, and shoe sector is an of import sector in which Turkey is one of the taking states in footings of production, and engineering, and in which Turkey is an exporter of engineering and know-how in some sub-product groups ; nevertheless, the export of the sector and the portion it has in universe markets are non satisfactory. Therefore, the sector can non recognize the value of the possible it possesses. Statistical analysis made with registered informations about developments related to sector in universe markets, places of these participants in these markets, and the presence of Turkey in markets, indicates that sector is in demand of a market scheme that will be quickly applied.
When the place of Turkish leather, leather merchandises, and shoe sector in universe markets is considered closely, it is seen that the sector is non an of import participant in taking markets. Current export is chiefly to Russia ; nevertheless, it can be seen that the most critical market, which is European Union, does non come up with a important portion in entire market.
In general, negative competition, deficiency of direction and capital due to household company construction, deficiency of new merchandise development and modern selling activities due to company graduated table are factors weakening the competitory power of sector.
The place of Turkish leather industry takes in universe market is in the country of qualified, non-expensive leather, and leather merchandises. It is about impossible for the sector to vie with merchandises produced in mass and cheaply in Far East. Further development in countries where the sector can vie depends on merchandise quality, and merchandise assortment. The experience, cognition, and mature labour force possessed may enable the sector to travel farther in this country. The sector must be cognizant that allotment of resources for this country will be a paying investing for long term. There are many possibilities of merchandise development in the sector runing from natural leather processing methods to valuing of processed leather in footings of use country and intent. It is besides possible to raise the value of faulty merchandise and faulty semi merchandise non merely through developments in production but besides in completing phase. However, developments in leather processing and picture require resource and skilled labour allotment in R & A ; D activities. Therefore the appropriate scheme for the incoming yearss should be concentrating on R & A ; D activities.
Sector faces troubles in regard of manner and stigmatization. In this country, imitating is in more forefront than originality and creativeness. Works done with interior decorators and resource allotment degree for these plants is deficient. It is rather of import to be cognizant that selling is the art of making demand for new merchandises, and innovativeness and creativeness must be in the head. In this regard, Turkey should be the leader in manner, and branding as the new centre of leather. Manner and design competitions organized therefore far indicate that Turkey possesses cognition, and originative immature interior decorators that can non be undervalued. A particular attending should be paid to sector. A quantum spring should be actualized for non merely leather merchandise such as dress or shoe, but besides for processed semi-product leather produced by Turkish leather sector. But in order to hold sustainable and lasting export, tanneries must specialise on leather they process one by one or in groups.
There are inequalities and “ unjust competition ” in parts where industrial leather production of Turkey is done. Avoidance of such sort of conditions is a demand for our common benefit. Recently experiences indicate that closing of tanneries or impairment in a specific part does non convey in an advantageous place for the other parts. The nucleus declaration is to utilize multi-regional construction of the industry, which possesses different experience and hardware as a positive factor for foreign competition. Italy is a good illustration for the sector. Italian leather industry has developed specialisation of different parts on different merchandises, so that they have achieved to place themselves as a antiphonal sector to different demands through a diversified merchandise scope, and they have bewared of destructive competition in between. Together with division of labour, and specialisation mentioned above, reconstituting in production requires new purpose built agreements and organisations. All above are aims that can perfectly be actualized bit by bit. The of import point here is stableness for making the right and holding an unfastened apprehension.
Investing and scale growing has been financed through the benefit gained from recent market growing, and as a effect through equity capital. Support of modern engineering investing is rather expensive. For case, constitution of a modern tannery bring forthing 2000 unit of leather for fur per twenty-four hours costs 5 million dollars. Production cost is rather high as good. First, the sum of leather, which is the basic natural stuff, and input of the leather industry is limited to the figure of animate being on Earth, so that leather is an expensive natural stuff. Furthermore, fluctuations in supply-demand dealingss make the leather a stuff, which is unfastened to guesss in universe stock markets. On the other manus, leather processing cost and working capital demand is quiet high. In brief, fixed capital investings are financed through sector ‘s ain equity capital, nevertheless, due to idle capacity amortisation of this funding has come to a arrest, and to pay for the extra natural stuff and operating cost has been a affair of concern.
In decision, the sector must be directed to new markets through uniting cost, quality, and assortment within the optimal manner while maintaining its market portion in Russian market. The sector must hold the bravery to be originative, and advanced, and bravery to alter wonts. The chief intent should be diminishing the market portfolio hazard by concentrating on both hazardous and high-margin markets such as Russia, and stable, secure, and low-margin markets such as USA. Notably, markets of developed states are markets with high barriers, high demand and high quality criterions, nevertheless, one time entered, these markets provide stableness and institutionalism. Efficient immense markets perceived as emerging economic system in industry and trade throughout the universe such as China must be taken into consideration.