Still too reliant on the Russian market

Formula One The catwalk fashions at ILD were fluid and stunningly original. Turkish names such as Harmanli, Emelda, Kuzu Deri and Huseyin Sahin, are leaders in the fashion field; so much so that one sees little need for Türkiye to prove itself in this respect. In doubleface production, Türkiye represents what Formula One is to car racing. With over 80 million lambskins processed from raw, pickled or crust in 2002, their rank is undisputed. Trends, however, are another matter. These reflect one market (Russia) and one skin (lambskin). Russia - picnic or panic Russian customers have long been the mainstay of the garment sector, totting up $1.5 billion worth of sales, which defied and outwitted officialdom. One chemical company's research and development specialist considers the two-fold danger. 'Without the diversity and risk spread around better, the future is not secure.' This came from Dr Volkan Candar of Cognis Kimya AS in Istanbul, who also added: 'Türkiye is a leather country and without greater variety in leather production, it will be hard to compete in the future.' If firms who concentrate just on the Russian market had profits to show, it might be different but the 3-4 month, flat-out doubleface production cycle, followed by eight or nine months of shutdown, has almost negated profits and, additionally, is a disastrous global business model. It doesn't end at hide and skin production, because machinery producers have also been squeezed. Ezgi Ajans reported that some firms had US$750,000 worth of sales at ILD but, as Ahmet Yildirim of Yildirim Makina pointed out: 'Over four or five years, I have lost about $12 million because clients rely on the sole market.' In 2002, machinery sector sales topped some $20 or $25 million, but this whole-market figure was the value of just Yildirm Makina's sales a handful of years ago! Yildirim claims an 85% share of the domestic machinery market - a market that he describes as 'full'. ILD saw many stands offering printed leathers to sub contract. These skins are colourful and fun, particularly the leopard prints on fur, with the spots ditto'ed on the inner skin. But 'jungle' prints are over-done and over-processed and feel dry and lifeless. The grain seems to have gone and the 'lustre of leather' forgotten. Amazon themes, in fact, mask any number of flaws in second or even third quality skins. Producers shrug it off with: 'This is what Russians want.' International pressure is on Russia to curb illegal trade. In future, street bazaars will not sell leather items and this will be controlled at a municipal level. Customers must purchase these items in retail outlets. Russians are also collecting import duties on leather garments from Türkiye. Transporters will come under new rules too, but the real impact of legislation won't be felt until the beginning of the next doubleface season. One garment producer estimated that the new regime added about 52% to the cost of a jacket. Such producers resent the value of their products being determined by Russian customs officials. One must add that not all Turkish producers know the cost of their products and most do not (and do not want to) factor in labour, value added tax, wages, insurance, or staff turn-over variables. Many say they find the official exporting procedure and form-filling beaurocracy too complicated. What will they do when the White Papers on leather, now being discussed in Brussels, arrive on their doorstep? Downscaling Leather firms who rely on Russia are now twitchy. Many see the market as full and the future undetermined and uncharted. Even prudent tanners, such as Yesiller or Desa Deri, who make first quality leathers for diverse markets, must downscale or diversify to maintain profits. Turkish State Minister for Foreign Trade, Kursat Tuzman, expressed concern that only the most competitive tanners would be left by the end of 2003. This means about 200 or 250 of the current 400 tanneries. Downscaling not only involves cost cutting. Machinery producers like Hüni, Ozdersan Deri Makinalari San Tic Ltd Sirketi, Osmanli Makina and Mercan all make smaller, more compact drums. Giant, angle-poised mixer drums are almost extinct due to high running costs. A variety of firms now offer reduced-capacity drums for laboratories and trials and they hope this sort of downsizing will help to keep the market ticking over. Early on, Türkiye rejected the Italian model of 'cluster' production, something that Hüni's long-standing representative in Türkiye, Berki Yalinkilic, thinks was a mistake. To economise, firms have now started to subcontract the drying process to one or two firms within each leather processing zone. Many firms over-invested in expensive tannery equipment that was only switched on for the doubleface season. While the market was booming, inefficiencies could be overlooked. Türkiye and its leather sector should not be considered in isolation. Global companies in all sectors are battling overcapacity, rising manufacturing costs and a brutally competitive marketplace. All are pruning costs. Diversifying Although garment makers resolutely prefer one market, machinery makers are aggressively scouting elsewhere. Both Yildirim Makina and Ozdersan took orders at ILD from US firm Nugget (Southern Pacific Leathers). Ozdersan was one of the first makers to sell tannery equipment (ironing, fleshing and staking machines) to China and they report a steady upward sales curve to Chinese tanners. Interest in the Iranian market is growing. Iran has more tanneries than Türkiye and domestic leather consumption is impressive. Tanners process both ovine and bovine skins. Exports are a problem for this country but Turkish machinery can be imported free of duty. In spite of war clouds on the southern horizon, it is business as usual for many local machinery makers, who were forced to upgrade production, mostly because of the high cost of Italian imported tannery machinery that followed the introduction of the single European currency. Turkish quality is excellent, highly automated and production costs are often several thousand dollars lower than similar 'made in Italy' machines. Diversifying includes not only markets. Ahmet Yildirim told Leather International that he has diversified into yacht production, turning out fibreglass cruising yachts for the tourist trade. Türkiye's most prolific garment exporter, Desa Deri, have restructured their family business to introduce their new range of leather homewares. These sophisticated leather items make one reflect on a brighter future for Turkish leather given more of this sort of diversity, planning and foresight. Sarchem Shanghai'd Along with Turkish chemical firms Cognis Kimya and Kromsan (Sisecam), Istanbul-based Sarchem Kimya Sanayi ve Ticaret AS have opened an office in Shanghai to more effectively market their range of about 300 leather finishing products. Sarchem's Shanghai manager, Kamil Aksu, has the advantage of a Chinese spouse and a fluent command of the Mandarin Chinese language.