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R 301246Z MAY 06
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UNCLAS SECTION 01 OF 03 ADANA 000128 
 
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E.O. 12958: N/A 
TAGS: PGOV ECON PREL TU SY IZ
SUBJECT: TURKEY: SOUTHEAST'S TEXTILE INDUSTRY CONTINUES TO STRUGGLE 
AGAINST INTERNAIONAL COMPETITION 
 
 
ADANA 00000128  001.3 OF 003 
 
 
¶1. (SBU) Summary: Turkey's textile industry continues to face 
difficulties in dealing with rapidly growing global competition, 
particularly from China and India.  Textile industry leaders in 
Kahramanmaras, Gaziantep and Adana recently told us that the 
textile industry in Turkey's southeast continues to suffer from 
foreign competition, despite GOT financial incentives.  Many 
textile plant owners are downsizing or diversifying their 
investments into non-textile businesses, such as agricultural 
products and construction materials.  Larger textile firms are 
responding to international pressure by leveraging their assets 
to adjust their position in the international textile market. 
Some industry leaders called on the U.S. to include Turkey in 
textile-participating qualified industrial zones (QIZ).  End 
summary. 
 
¶2. (U) Textile industry leaders in Kahramanmaras, Gaziantep and 
Adana recently told us that, since WTO quotas were lifted, and 
despite GOT financial incentives, the textile industry continues 
to suffer in the face of serious Asian competition, particularly 
from China and India.  From the early 1980s until 2000, the 
textile industry has grown extensively in Turkey because 
successive governments provided the sector with continuous 
financial incentives, hoping to provide increased employment for 
the rising population. Indeed, the sector has been the 
"locomotive" of Turkey`s exports until recent years.  The yarn 
industry, which particularly has grown  between 1994-2000, today 
has a capacity of  7.5 million spindles and 700,000 rotors, 
which is much higher than the total capacity of the EU`s 25 
countries. Capital-intensive investments, such as 
knitting/weaving and dyeing/printing, followed yarn mills, and 
have become the largest in the world. However, those investments 
were made without much feasibility assessment consideration, 
which caused the country to invest nearly $75 billion in the 
sector from 1985 to 2005. 
 
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KAHRAMANMARAS 
------------------------------ 
 
¶3. (U) Ranking thirteenth in terms of provincial size in Turkey, 
Kahramanmaras has four main industrial sectors; textiles, food, 
steel kitchen units (pots and pans), and construction materials. 
 Private sector investments, mostly in textiles, made during 
1990`s contributed significantly to the economic development of 
the city. 
 
¶4. (SBU) Mehmet Balduk,  President of Chamber of Commerce and 
Industry (CCI), and owner of a yarn mill and a weaving mill in 
Kahramanmaras told us that his business`s profitability was 
below expectations. The weaving mill founded in 2004 is 
comparatively new. Its exports increased 250 percent in 2004, 
and 40 percent in 2005. They expect an increase of around 20% 
for the year 2006.  Kahramanmaras is one of the cities 
benefiting from the GOT`s regional financial incentives program, 
which Balduk said increased investment in the textile sector. 
Balduk called for the U.S. to include Turkey in a 
textile-participating qualified industrial zone (QIZ), saying 
Turkey deserved such trade treatment for its contributions to 
peace in Iraq and assistance in the Israeli-Palestinian 
conflict. 
 
¶5.  (SBU) Hanefi Oksuz, owner of KIPAS, the largest textile 
factory in Kahramanmaras, noted that his company is seeing 
greater international competitive pressure.  However, Oksuz 
accepts that KIPAS has been influenced by Asian competition, but 
he is not considering leaving the textile sector because it is 
KIPAS` main business. KIPAS sells to American companies, such as 
GAP. Oksuz complained that American and European customers 
imposed labor requirements/inspections on Turkish firms that 
they do not impose on their Asian suppliers, which causes a 
labor cost disadvantage for Turkish exporters. 
 
¶6. (SBU) Oksuz' discussion of new business ventures revealed 
that he sees a diminishing future in textiles for his company. 
He has built a very large greenhouse behind one of his factories 
and is growing tomatoes organically. If the tomatoes sell well 
in the domestic market, he plans to export them to EU countries. 
CCI president Balduk told us  that KIPAS is considering moving 
part, or all, of its textile business to Egypt or North Africa 
to benefit from the American QIZ's set up there.  Oksuz, said 
that KIPAS would direct its new investment money into a cement 
factory in southern Kahramanmaras and asked us to find a buyer 
in Iraq for his recently mothballed fuel oil-fired electrical 
 
ADANA 00000128  002.3 OF 003 
 
 
power plant.  He explained that rising oil costs had prompted 
KIPAS to shift to a coal-fired electrical power plant which 
imports its coal. 
 
 
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GAZIANTEP 
------------------ 
 
¶7.  (SBU) Gaziantep is one of the nine cities in Turkey`s GAP 
project (Southeast Anatolian Project, an economic development 
project for the southeast region based on agriculture). The city 
is the largest and economically most developed in the GAP 
region. Being the gateway into GAP, the city has provided the 
foundations for the economic growth of the region. The primary 
sectors in Gaziantep`s economy are textiles and food. Secretary 
General of Gaziantep Chamber of Industry Kursat Goncu told us 
that the impact of increased Asian competition on Gaziantep's 
textile SMEs has been strong, especially on those enterprises 
lacking significant internal capital. He noted that some of 
these smaller companies have either gone bankrupt, operate "off 
the books" to avoid paying taxes, or have moved significant 
parts of their operations to Syria to garner what they hope to 
be lower wage costs.   The leadership of the Gaziantep-based 
Konukoglu family-owned SANKO conglomerate, one of Turkey's large 
industrial groups with a textile base, has called for the 
government to take steps to relieve currency pressures affecting 
Turkey's textile exports and to reduce energy costs for the 
sector through a state supplement.  The SANKO family also has 
called for the U.S. to include Turkey in textile-participating 
QIZ's. 
 
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ADANA 
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¶8.  (U) Adana is the 6th largest city of Turkey and the largest 
of the Mediterranean region, where the industrial development 
efforts date from the late 1950s, just like with Istanbul, 
Ankara, and Izmir. Textiles is the dominant sector in Adana`s 
economy, as it is in several other industrialized regions of the 
country. 
 
¶9.  (SBU) Tarik Bozbey, a senior executive in several textile 
companies in the Cukurova region, and chairman of the 
Mediterranean Exporters Union, told us that he was  confident in 
the overall prospects for the textile sector. He explained that, 
unlike the EU countries, Turkey has a textile tradition dating 
back over a thousand years, which, he argues, was Turkey's most 
important reason for maintaining a textile industry. He added 
that Turkey will always have an advantage of physical proximity 
to European customers over its Asian competitors. The difference 
Turkey can make is to leave production of regular or ordinary 
textile products to the Far East, while specializing in higher 
value-added products. According to Bozbey, Turkish textile 
companies can move to, or open new factories in places like 
Jordan, Egypt or Morocco, where there are no tariffs for exports 
to the U.S. 
 
¶10.  (SBU)      Can Piyale, managing director of BOSSA Textiles, the 
flagship textile arm of the Sabanci group, one of Turkey's 
largest industrial groups, told us that textiles still comprise 
an important sector for his group, but increased Asian 
competition was challenging many Turkish textile companies.  He 
indicated that Sabanci saw its market position as placed quite 
differently than that of most Turkish textile players, and did 
not advocate on behalf of the overall sector, such as SANKO 
representatives do. He said that much of BOSSA's work is 
finished confection on direct sales contract by major 
international retailers.  He added that BOSSA`s business is 
better so far this year compared to last year, but  worse 
compared to 2004. Piyale said BOSSA was trying to get an 
appointment with GAP for a franchise agreement in Turkey. Their 
main export customers are GAP, Liz Claiborne, Marks & Spencer, 
Nine West and Hugo Boss. BOSSA has offices in the U.S. and the 
U.K. 
 
11 (SBU) Ahmet Coskun, the owner of a nationwide chain of shops 
called "Suvari", has been in textile business since the early 
1990s.  What his father started up as a small business is now on 
its way to become an international brand. They export to Europe 
and Middle Eastern countries. They already have some shops in 
Europe, and are also planning to open in Russia as well. 
 
ADANA 00000128  003.3 OF 003 
 
 
 
 
----------------------------------------- 
OUTLOOK FOR TURKEY`S TEXTILE INDUSTRY 
----------------------------------------- 
 
¶12.  (U) It is certain that Turkey`s textile sector has been, 
and continues to be, influenced by Asian competition. Starting 
in the late 1990s, conglomerates like Sabanci and Koc, who had 
foreseen changing economic trends, downsized their textile 
companies or left the sector altogether.  Those who downsized 
their businesses narrowed their product range in order to 
specialize in certain branches of textile so that they could 
compete and outperform their foreign competitors. SMEs, most of 
which are lacking in internal capital, are struggling to 
maintain their businesses, trying alternative business models, 
such as outsourcing, subcontracting, or relocation. According to 
a local contact who is a member of the Mediterranean Exporter`s 
Union,  the number of textile companies going out of business in 
the Mediterranean and southeastern regions of Turkey is much 
higher than in the north and west of the country. Among the 
reasons for this are the lack of qualified labor force, 
particularly in the southeast; the availability of low-cost raw 
materials; the physical distance from main ports; and the 
absence of side industries. 
On the other hand, the GOT still encourages the textile sector 
in the southeast as part of its efforts to develop the region. 
Most of the factories that the Prime Minister has opened 
recently are textile businesses. Textiles will continue to be 
one of the main politically-sensitive sectors in the country 
going into the 2007 election season. 
REID