Competing in the U.S. market BUT HOW?

It is quite normal for producers to eye the U.S. market, the largest buyer of goods and services in the world. In 2003, the total foreign trade of the U.S. reached $3.2 trillion, accounting for 19% of the world goods trade volume and 15% of the world service trade. Total U.S. imports is $1.5 trillion, or 30 times larger that Turkey’s total exports, which reached $47 billion in 2003.

Companies that started operating in the U.S. instead of remotely managing their sales and marketing activities from Turkey shared their experience with Turk of America. What do Turkish companies do in this huge market? What are trade opportunities? How is the market competition? Despite our increasing trade volume, how do our competitors fare? Is the growth trend strong enough? We asked these questions to prominent Turkish businessmen and managers in the U.S.

IS THIS A DEADLOCK?
Trade between Turkey and the U.S. reached $6.6 billion last year. While Turkish exports into the U.S. market were $3.7 billion, the U.S. exported $2.9 billion worth of goods and services. Turkey has a trade surplus of $833 million, meaning that it exports more to America than it imports from there. Considering the 2003 trade deficit of $506 billion, this deficit of $833 on the U.S. part is hardly significant at all. America buys from 230 countries and has a trade surplus with only three of its largest 20 trading partners. The U.S. sells more to than it buys from the Netherlands, Belgium and Singapore only.

Although the U.S. is a very important trade partner for Turkey, the reverse is far from being true. Last year the U.S. was the third largest export market and the sixth largest import source for Turkey. In the same year, Turkey ranked as the 42nd biggest exporter to and 31st largest importer from the U.S. America’s top three trading partners are Canada ($224 billion), China ($151 billion.), and Mexico (137 billion).

In 1990, imports from Turkey ($1.1 billion) accounted for 0.19% of total U.S. imports, which were $618 billion. After 13 years, in 2004, this ratio increased to 0.25%, implying that Turkey exports its share by 0.6%. Although the trade volume between the two countries has increased in dollar terms, our share in total U.S. imports is pretty much stagnated.

For example in 1999, the US purchased $21.4 billion worth of goods and services from Malaysia. In 2003, this figure went up to $25.4 billion, making Malaysia rank the 12th biggest export to the American market. In Turkey’s case, exports to the U.S. went up from $2.6 billion in 1999 to $3.7 billion in 2003, an increase of $1.1 billion.
 
According to the 2003 data, Malaysia accounts for $25.3 billion, or 1.67%, of total U.S. imports. South Korea’s share is 2.4%. Turkey, which is competing with these two countries, has a share of 0.25%. Although we are all happy about the increase in exports, Turkey still ranks behind Algeria, Angola, Trinidad & Tobago, Vietnam, and Nigeria.

TEXTILE IS THE DRIVING FORCE, BUT…
Textile and apparel are the main exports from Turkey to the U.S. Located around hot spots such as Fashion Avenue and Broadway, Turkish companies sell their products to leading companies including Liz Claiborne, GAP, Nautica, Guess, DKNY, Calvin Klein, Levi’s, Tommy Hilfiger, and Banana Republic. In towels and bathrobes, “Denizli” is a more recognized name than “Turkey.” When you shop in a major store chain, it won’t be a surprise if one or more of the labels read “Made in Turkey.” On the other hand, the lifting of import quotas in 2005 is likely to have a negative impact on Turkish exports in favor of Chinese and Indian goods and force Turkey to widen its product span. Although the Chinese have low quality products at present, industry experts remind that China actually does produce quality products as much as Turkey can. Today, 50% of Turkish goods entering in the US are textile and apparel. Any contraction in market share can hardly be offset by alternative industries.

Leading Turkish textile producers currently sell woven products, denim, knitted products, polyester, home textiles and many others to the U.S. EDPA of Akin Tekstil, Holsa of the Sabanci Group, Calik Holding, Zorlu Holding, Sarar, Mavi, Guney-Polgat are among the major companies active in the market.

APPAREL IS LEADING
According to the 27-page Turkish Foreign Trade Report prepared by the New York Commercial Attaché Mr. Yuksel Akca, textile and apparel accounts for 50% of Turkish exports to the U.S. The largest subgroup in this category is woven apparel products with $732 million of export value.

In 2003, woven women’s apparel, suits, skirts and pants increased by 38.7% and reached $97.7 million, while woven t-shirt sales remained stable at $78 million.

During the past recent years, sock exports, a traditional strength of the Turkish industry, have increased significantly. In 2003, the total value of sock exports to the U.S. increased by 32% over 2002 and reached $28.6 million. Woven men’s apparel decreased by 27.3% from $32.3 million to $23.5 million, while men’s shirts exports increased by 16.3% to $48.2 million from $41.5 million. Woven fabric exports increased by 41.3% from $9.3 million to $13.2 million.

Woven men’s suits exports increased by 36.7% in 2003 to $73 million from previous year’s level of $55.6 million. Sarar’s activity was a major factor in this increase. During the same period, women’s apparel exports increased by 6.1%, reaching $260.4 million from $254.4 million. Knitted men’s t-shirt exports increased from $41.5 million to $48.2 million. Exports of bathrobes, for which the quotas were lifted, were decreased by 8.3% to $109 million from previous year’s level of $119 million.

In home textiles, bed sheets, table covers and towels have reached $163.3 million in 2003 from the 2001 level of $114.2 million. Exports of drapery, which also belongs to this category, have decreased from $94.5 million to $85.5 million.

EXPORT GROUPS TO THE US (U.S. Dollars, million)

Product                    2002        2003        Change (%)

Women’s apparel, suit, skirts, pants    59.9        97.7         38.7
Knitted t-shirt                78        78         ---
Socks                    21.6        26.6         32.0
Knitted men’s shirts            32.3        23.5        -27.3
Woven men’s shirts            41.5        48.2         16.3
Woven men’s suits            55.6        76.0         36.7
Women’s suits                254.4        260.4         06.1
Woven men’s t-shirts            41.5        48.2         16.3
Bathrobes                119        109        -08.3
Bed sheets, table covers, towels        114.2*        163.3         42.0
Drapery                94.5        85.5        -09.6

(*) 2001 level
Source: http://www.usitc.gov

GOLD RUSH
Exports of gold have reached $250 million, thanks to the increased number of Turkish gold companies opening up in the U.S. There are approximately 25 Turkish companies around 47th and 48th Streets in Manhattan, where the gold market is centered. Many Turks in New York are working in the gold business, either as retailers, craftsmen, or wholesalers. Pioneer companies in this field include Arpas, Altinbas and Altinsay. Other major companies are Favori and Goldenline.

Bilgin Cevik, the General Manager of Altinbas, which entered the market in 1990s, says that the number of Turkish companies in the market increases every day. Most of the companies are wholesalers and a few are active in retail business. Goldas and Elite are among leading companies who reach end-customers. According to Bilgin Cevik, the reason why Turkish companies are more focused on the wholesale is the high cost associated with building a brand name: “When you look how big the market is, it is very difficult to become a brand. But you should not compromise the quality.” Mr. Cevik says that in addition to representative offices in New York, there are many people currently in the gold business that left Turkey many years ago. Aside from gold, $4 million worth of silver goods and $1 million of imitation products are also exported every year.

MARBLE COMPANIES COMPETING WITH EACH OTHER
Marbles, natural stones and travertine are growing fast in the U.S. Every other day a new marble company opens up in New York, New Jersey, Washington, D.C., Florida, Pennsylvania, and California. Approximately 10 of these companies export over $10 million worth of marble. Most marble companies had a great year in 2003. Total exports jumped from $124 million in 2002 to $183 million in 2003, representing an increase of 47.6%.

The first company to discover the U.S. market was Afyon-based Tureks, followed by Tekmar, Ureks, and Ozerler. Ethem Oksayoglu, Chairman of the Board of Ravini U.S.A., one of the newcomers in the market, believes that Turkish companies are competing against each other. Most of these companies are located in Florida, California and the New York-Pennsylvania region and have their own mines and factories in Turkey.

Approximately 80% of the travertine output of Turkey is exported to the U.S. Third country companies also offer Turkish marble and travertine in the American market, increasing the competition. Mr. Oksayoglu says that marble from Denizli, Bilecik, Bursa, Mugla and Afyon are preferred the most in the market. The underlying reason for the growth in marble exports is the shift in demand. Customer preference has moved from carpets and ceramics towards marble. “Marble was successful in warm climates because it was cheaper than ceramics. We have basically replaced carpets and ceramics, especially in Florida and California,” says Mr. Oksayoglu.

The main problem in marble is the inability to provide products with the same design and quality. Although marble gained ground against ceramic products, the latter still has a market volume of $61.5 million in the U.S. Exports of porcelain bathroom, kitchen, and toilet products have increased by 60.4%, reaching $17 million from the previous level of $10.5 million.

TWO GIANTS IN COPPER
Increase in copper product exports is also noteworthy. In 2003, exports of copper products have increased by 60.2% and reached $22.4 million from $14 million. Companies that have contributed to this increase were the Denizli-based Erbakir and Sarkuysan. CN Wire Corporation, Erbakir’s U.S. subsidiary is located in Connecticut and has been active since 2002. The company has warehouses in California, Illinois and New Jersey, and expects to have a sales revenue of $25 million this year. CN Wire Corp. competes against Sark U.S.A., Sarkuysan’s U.S. subsidiary and various American companies, and reaches its customers in New Jersey, Philadelphia, California and Texas.

Nazmi Kalkanci, the CEO of CN Wire Corp., says that they have a competitive advantage in bended wires between 0.25 mm to 0.05 mm of width. Mr. Kalkanci is optimistic about the future of copper products in the US. His recommendation to newcomers in the market is to focus on service and quality rather than offering better prices. Copper products are used in many American industries, including computers, medical equipments, submarine alarm cables, etc.

TRANSPORTING TURKEY
The transportation industry is growing along with export volume. The estimated volume of the transportation market between Turkey and the U.S. is $1.8 billion. In maritime transportation, Turkon is the only company that uses its own vessels and leads the market. The company has four vessels operating on the average 43 times between the two countries. Mustafa Merc, Turkon’s General Manager, says that maritime transportation is a difficult and sophisticated industry. The company’s market share is 36% in exports to the U.S. and 25% in imports from the U.S. Its main competitors include Dutch, Danish and German companies such as Netloyd, Maersk, P& O Nedl-Loyd, Mediterranean Shipping and Hapag Loyd.

According to a Time Warner Group study, Turkon is the 45th largest company in its industry. It has been operating between Turkey and the U.S. since 1997 and has a sales turnover of $70 million. Other transportation companies are generally based in New York. MTS Logistics, which made a special agreement with the American authorities to provide satellite-controlled transportation services, Maraton Line, Tul Air, Marmara, Alto Air, Mega, Ata Freight, and Barsan are other transportation companies that work as agencies. Nex Worldwide Express, a company that provides courier services between Turkey and the U.S., is the leader in courier transportation. Approximately 80% of Turkish companies who has daily shipments bound for Turkey are Nex customers.

Turkey currently ranks as the third largest carrier (following Italy and Spain) from the Mediterranean region to the U.S., and the second largest carrier to the region, following Italy. Mr. Merc says that Turkey will beat Spain within the next few years and become the second largest carrier in both exports and imports.

$10 MILLION IN 3 YEARS
New York Commercial Attaché, Yuksel Akca, emphasizes that Turkish exports to the U.S. will reach $10 billion within the next three years. Since registration is not obligatory, the Commercial Attaché Office is not aware of many Turkish companies operating in the U.S. “We have a surplus of approximately $900 million for the first time. This is a 120% increase over the year before and is important,” says Mr. Akca. According to him, “increased export efforts by Turkish companies are not the only factor in this success. The support provided by the Undersecretariat of Foreign Trade to Turkish companies was also instrumental.” Mr. Akca states that there are 39 products in which Turkish exports to the U.S. are over $10 million. He also emphasizes that as qualified industrial zones become operational in upcoming years, trade volume between Turkey and the U.S. will grow even faster.

    
10 LARGEST IMPORT GROUPS IN THE U.S.  (U.S. Dollars, million)

                                                          1999            2000                2001             2002                2003
Total exports                            1,024,618    1, 218,022     1,140,999    1,161,365    1,259,395
Automobiles (old and new)        96,297        109,197         106,649       113,994       114,365
Crude oil                                        50,889           89,876           74,292          77,283         99,094
Computer parts and acc.           70,649           75,485            61,297          59,010         56,153
Other parts and accessories    44,654           49,142            46,868          51,531         55,658
Medical,                                         22,510           27,808            32,703          40,748         48,984
Cotton apparel                             30,537           34,123            33,941          36,134         39,300
Household products                   17,722           19,824            28,444          31,726         35,182
Returns and re-imported goods28,779          31,858            32,693          32,750         31,012
Apparel and home tex                 22,254           25,695            25,642          25,162         27,078
TV, video or other                         16,381           21,043            20,674          23,110         25,364

Source: http://www.census.gov/

FOREIGN TRADE BETWEEN TURKEY AND THE U.S. (U.S. Dollars, million)

Year    Export    Import    Total Trade Volume    Foreign Trade Balance
2003    3,788.0    2,904.3    6,692.3          883.7
2002    3,516.0    3,113.2    6,629.2          402.8
2001    3,054.7    3,094.9    6,149.6          -40.2
2000    3,041.7    3,720.1    6,761.8        -678.4
1999    2,629.3    3,217.2    5,846.5        -587.9
1998    2,542.6    3,505.4    6,048.0        -962.8
1997    2,120.9    3,539.4    5,660.3     -1,418.5
1996    1,778.3    2,846.8    4,625.1     -1,068.5
1995    1,797.9    2,768.0    4,565.9        -970.1
1994    1,574.9    2,752.4    4,327.3     -1,177.5
1993    1,197.6    3,428.9    4,626.5     -2,231.3
              
Source: http://www.census.gov/

(June 2004, 13th Issue)