Is Turkey a profitable country for manufacturers?

Many sectors in Turkey today lag behind their counterparts in developed countries in profitability.  This trend can be seen in industrial sectors. Profits are nearly 2-3 times lower than in developed countries.

One of these sectors is timber and forestry products. “In 2004, the net profit rate was between 18 and 33 percent,” says Bülent Aymen, the head of the Mediterranean Timber and Forestry Products Exporters’ Union, adding that in 2005 the rate fell to 12-18 percent and that today it is 3-10 percent.

In developed countries, the rate is 10-15 percent. Doğanlar Group Board Chair Davut Doğan says that the net profit rate in the furniture sector is 5-8 percent. “Even though Turkey has a very important place in manufacturing worldwide, sufficient investments are not made in design and R&D. The shortcomings continue in sub-contracting manufacturing, production technology, international standards and quality” he says.

COST DISADVANTAGE

Textiles and ceramics are two of the industrial sectors in which Turkey is strong. But the net profit margins in these two sectors lag behind the rates in developed countries. The high costs in Turkey are cited as the main reason for this.

High energy and labour costs, and tax burdens create a competitive disadvantage.

Ismail Gülle, the head of the Istanbul Textiles and Raw Materials Exporters’ Union (İTHİB), says: “The situation is changing, according to many variables, ranging from profitability, marketing from production, local factors and global factors. But it is not enough to lay the foundations for real growth. Our profitability ranges between 5 percent and 10 percent, depending on the product, market and customer. In developed countries, these rates are between 10 and 20 percent.”

Is Turkey profitable? Leather producers in Turkey, make 3.3 times less profit than their rivals in other countries.

TWO FORTUNATE SECTORS

But, despite all these disadvantages, there are areas in Turkey which are more profitable than their counterparts in developed countries.

The Deloitte Global Powers of Retailing 2009 report says that the average net profit rate in the 250 largest retailing companies in the world is 3.1 percent.  In 2011, net profitability in the world as a whole varied between 3 percent and 5 percent. In Turkey, companies work on a 3 percent profit margin.

Hamit Akçay, the general manager of the Kim Supermarkets chain, says that in the last decade the profit margins in food retailing have continuously declined as a result of competition. One of the areas where profits run parallel to those in developed countries is in packaged pulses. Officials from Arbel Bakliyat say that there is no difference between the net profitability of the packaged pulses sector in Turkey and its counterpart in developed countries.

THE MOST PROFITABLE SECTORS

Even though their number is small, there are sectors in Turkey which work on higher profit margins than their counterparts in developed countries.

Some of these sectors are construction, housing, fast food and fuel.

Ukra İnşaat CEO Kürşat Tuncel says that profitability is still very high in project development compared with the rest of the world and he adds: “What is special about the housing sector in Turkey is that it has a potential which does not exist in any other country in Europe. It is not certain that our profit advantage will disappear in the near future. In fact, Turkey needs 7 million housing units over the next seven years and production varies between 500,000 and 800,000.”

Eser Taahhut Board Member Cem Eser notes that net profitability in the construction industry in Turkey is 10 percent, whereas it is only 5 percent in developed countries. “Turkey is an advantageous country. There is a $250 billion investment programme which will be realized by 2023” says Eser.

05.03.2012
SOURCE: CAPITAL