128 Clusters and Competitive Advantage government has been even more meagre (Eraydin, 2002a), as in the cases examined in the previous chapters. Reasons for geographic concentration Initially the industrial establishments in Gaziantep were concentrated in and around the city centre. In the 1950s the Sehreküstü district and Nizip Street and its environs became industrial spaces, and in the 1970s KÜSGET and Örnek Sanayi Sitesi industrial estates 18 were established on the periphery of the city. Currently there are three small industrial estates containing thousands of small and medium-sized enterprises, mostly in the machinery, metal-working, transportation equipment and furniture industries, and three organized industrial zones for firms in the textiles, machinery, chemicals/plastics and food industries; that is, the leading businesses in the Gaziantep economy. In the city centre, Nizip Avenue and its environs are still popular areas for industrial establishments. 19 Another central area, the Ünaldi-Sehreküstü district, is home to small and medium-sized lentil processing facilities and carpet factories. Interestingly, according to our interviewees carpet firms typically start their operations with an office in the city centre and manufacturing facilities in the Ünaldi-Sehreküstü district, but then move to KÜSGET and finally to one of the organized zones. In other words, Ünaldi-Sehreküstü and KÜSGET are seen as stepping-stones to the organized zone. 20 The emergence of the cluster Before proceeding to the particular circumstances that led to the emergence of the carpet cluster in Gaziantep, it might be helpful to consider why hand- woven carpet production mostly takes place in western Turkey in general and central Anatolian cities in particular. According to Ayata (1987), this is related to the nature of the land. Although land is not scarce in central Anatolia, few types of crop can be cultivated there (mainly wheat and barley), and in past days this left the peasants with plenty of spare time to engage in a variety of handicrafts, including carpet weaving. 21 Thus the nature of agricultural production gave rise to the practice of carpet weaving in central Anatolia. In the case of eastern Anatolia, however, there are few historical records of carpet weaving as an important economic activity, apart from some production of kilims. Arguably, the fact that kilims were produced in Gaziantep facilitated the transition to the carpet sector. According to one of our interviewees, the main catalyst for the emergence of the cluster was the growth of cross-border imports of silk carpets for decorative purposes (usually for wall hangings and bedspreads). These were very popular, not only in the immediate region but also in the rest of the country. The interviewee thought that kilim weavers had begun to produce such carpets in Gaziantep in an attempt to capitalize on this trade. However they were unsuccessful and decided to concentrate The Carpet Cluster in Gaziantep 129 on the production of regular carpets for floors, thus ‘building on their accu- mulated experience in kilim manufacturing’. Many of the interviewees underlined the importance of the existence of a textile sector in Gaziantep in general and the highly developed yarn and textile-machinery sectors in particular. Gaziantep’s master craftsmen had no difficulty copying looms and other carpet-manufacturing machinery imported from other parts of Turkey and abroad, so the transition to machine-woven carpet production was quite smooth. Another interviewee argued that a change in demand patterns had brought about the transition to carpet production, in that ‘if there is demand for a product and one firm succeeds in fulfilling this demand, others follow suit’. What we can infer from all this is that the emergence of the machine-woven carpet cluster in Gaziantep can be explained by a combination of factors: the existence of a number of related and supporting industries (the yarn and machinery sectors in particular), demand patterns, and ‘historical accidents’ such as the success of imported silk carpets. This explanation resembles Krugman’s (1991a) account of the emergence of the carpet cluster in Dalton in the United States, which is presented as a typical example of a historical accident triggering the beginnings of a cluster. It is also very informative in respect of cluster formation in general, especially when considered together with the emergence of the towel and bathrobe cluster in Denizli. In both cases there was a long history of textile production but the later specialization in a particular product group (towels and bath- robes in Denizli and machine-woven carpets in Gaziantep) was very much the result of a historical accident, the local availability of key resources and an entrepreneurial spirit. Successful ventures were noted by other potential entrepreneurs in the region who were motivated to replicate the success of their fellow townsmen. This in turn fed new business formation, initiating the self-reinforcing cycle described in Chapter 5. When links were established between the carpet firms that formed the core of the cluster and related/supporting industries and institutions, the benefits associated with external economies strengthened the self-reinforcing nature of clustering. Therefore, a phenomenon that looks like a purely chance event might in fact be explained by the specific attributes of the local environment, and accidents of history are successfully capitalized only when the environment is favourable. Amongst the factors that have helped Gaziantep’s carpet producers to prosper, the part played by the yarn and machinery sectors is of special importance. As mentioned earlier, the yarn industry is one of the oldest textile-related operations in Gaziantep, and it is very competitive. Similarly the machinery cluster, which is also a historically important field of activity in the city, has developed and specialized over time, reflecting the needs of the sectors that dominate the economy. Cooperative networks have also had a role in the development of the cluster, although not as much as in Denizli. For instance firms help each other in times of crisis. Strong ties with family 130 Clusters and Competitive Advantage and friends, on the other hand, have been particularly influential in the process of new business formation. For example people who originally came from Besni (a town to the north-east of Gaziantep), who have a good reputation and prominent position in the Gaziantep carpet sector, have helped many of their relatives and friends to enter the business by providing them with guidance on the particular way of running a business in the cluster. Having a mentor to ask for advice not only facilitates entry but also improves the prospect of long-term success. The benefits of clustering When asked about the advantages of Gaziantep as a business location, an entrepreneur from Besni explained that the lack of opportunities in Besni had forced him to move to Gaziantep, which offered more in the way of industrial pursuits. Since he was familiar with textiles and kilim production he had channelled his efforts in that direction. Relatives and friends with an established position in the city had helped him to set up his business. ‘It is good to know people working in the same area as you are. You ask for ideas, where to buy yarn, for instance. It is much easier to run your business when you have good contacts.’ Other advantages are the city’s good infrastruc- ture, qualified workers, key location, accumulated know-how, including how to conduct international business activities, and the presence of related and supporting industries and institutions. 22 The benefits associated with this envir- onment are significant. For instance one interviewee mentioned that most of the entrepreneurs who had bought the necessary machinery in Gaziantep and started a new carpet-weaving business in another city had failed: ‘State- of-the-art machinery alone is not enough for the success of a business. If you try to run the same business in Ankara, for instance, you might find it difficult. If a machine breaks down you may not even find someone to repair it.’ Another example relates to a carpet firm in Çankiri in central Anatolia: ‘The manager of this firm has to buy yarn from here. He calls us every day to keep up with the latest developments in the industry. He regrets that he did not establish the firm in Gaziantep.’ As a result, in the words of another interviewee, ‘the rationale that there are too many firms here, so I will go and establish my firm somewhere else’ does not work because the quality of the local business environment is paramount. There is also a concentration of firms in unrelated businesses, including, pasta and footwear. One reason for this, according to the interviewees, is that the local people have an entrepreneurial spirit: ‘If Gaziantepians smell an opportunity, they enter a business impulsively’. 23 Apparently they have the courage to take risks – ‘If they have one million lira they do not hesitate to invest in a business that requires two million’ – because ‘an entrepreneurial mindset’ is instilled in them as children. There are some general benefits of clustering that are largely independent of the location in question, such as the proximity of related businesses, which The Carpet Cluster in Gaziantep 131 ensures the smooth functioning of an enterprise. As mentioned earlier, all kinds of yarn are readily available in Gaziantep, and the exact quantity required can be bought at favourable terms and very quickly. This has cost advantages (especially in terms of transportation and storage costs), it is practical and it facilitates information flows among cluster participants. How- ever opinions differ with regard to the benefits of proximity to rival firms. Some of the interviewees pointed to the danger of destructive price competition and the rapid imitation of new designs and best practices, whereas others emphasized the dynamism this brought to the sector by encouraging particiants to improve their competitive advantages. Nonetheless there was concensus that the colocation of rivals was advantageous for customers. As in the case of Denizli, it is the customers who visit the carpet firms in Gaziantep, rather than the other way round. One interviewee likened this to buying tomatoes in the local market, where there are numerous sellers and thus more choice. In fact the same logic applies to carpet manufacturers as they are customers of the yarn and machinery firms: ‘We have a chance to choose among the different alternatives. . .available in Gaziantep. We can get information on all the details and are able to make an educated decision.’ Another interviewee thought that colocation aided publicity: ‘It is difficult for a single firm to be known in the world carpet industry. But as Gaziantep is well-known, you can be known as a carpet firm from Gaziantep.’ Returning to the divided opinions on whether colocation resulted in dynamism or posed the threat of destructive price competition, the inter- viewees stressed that price competition was more likely to happen when there was stagnation in the market. Otherwise, as discussed in Chapter 5, the cluster environment might work against such competition, since the likely damage would be evident to the local actors and there might be social sanctions as well (see Chapter 8 for a detailed discussion of this issue). Another aspect of the proximity of rival firms is the flow of information. In the Gaziantep carpet cluster, information flows come mainly from customers, designers and suppliers. ‘Customers are very demanding in this sector. They force you to follow the most recent trends.’ As many of the smaller carpet manufacturers work with the same designers, key information on the most recent trends is quickly diffused. The same holds for yarn manufacturers and merchants. Moreover factories are located within a step of each other, managers and workers know each other, and the state of the business is a popular topic of conversation. As one interviewee put it, information flow is so speedy that ‘it would not be more rapid if it were broadcast on TV’. One further implication of this concerns the fact that preserving one’s reputation and behaving according to the norms prevailing in the cluster are of vital importance. It follows that any news of damage to reputation or deviation from the norms will disseminate rapidly as well. In the following section we shift our focus to another of the major concerns of this study: the likelihood of the cluster sustaining its success, which 132 Clusters and Competitive Advantage requires an analysis of the changes that have taken place in the environment and how the cluster has responded to them. Concluding remarks and future prospects Our analysis of the history of the cluster has revealed that although textile production has a long history in Gaziantep it was not until the 1970s that the production of machine-woven carpets began in Gaziantep and the cluster emerged. The second half of the 1980s witnessed the internationalization of the cluster, and in the 1990s it transformed itself by upgrading its technology and improving the quality of its products. Meanwhile important developments were taking place in the external environment, some of which had a lasting impact on the cluster. For instance the Gulf crisis in 1991 affected the Gaziantep economy much more than elsewhere in Turkey because the city’s significant trade relations with the Middle East in general and Iraq in particular were severely damaged (Eraydin, 2002a). The cluster firms were, however, lucky to have several newly emerging markets that they could turn to in the meantime, the Russian Federation and the CIS in particular. The Gulf crisis was followed by a series of financial crises in Turkey in the 1990s and early 2000s, which worsened their exist- ing problems (such as the high cost of financing) and badly affected their performance in terms of sales, profitability, investment and employment. Despite these setbacks the firms have maintained their key advantages: low-cost labour and high-quality products (Temel et al., 2002). The way in which the cluster firms have reacted to changes in external circumstances over time is reflected in their strategies. As mentioned when discussing the context for firm strategy, in its early stages of development the Gaziantep carpet sector had a rather poor reputation for quality. However, this is no longer the case, as since the 1990s firms have been forced to give priority to quality in the face of increased competition, especially from Belgium. Although Istanbul, Kayseri and Nigde have some presence in the machine-woven carpet industry, they have ceased to be key competitors: ‘These places are different from Gaziantep; they have a smaller number of very big, integrated firms’, one interviewee explained. The interviewees spoke positively about the strong competition from Belgium, whose entry into the CIS market, for instance, had forced them to pay more attention to quality in that market as well. Gaziantep has a cost advantage over Belgium and because of this some Belgian carpet firms are planning to invest in Gaziantep; in fact one of the leading yarn factories in Gaziantep already has a Belgian partner. In the mid-1990s new regulations on patents also triggered a change of strategy amongst the cluster firms. Before the proper enforcement of the patent law, copying was widespread and some firms even used the exact brand names of companies from which they had copied designs. Following the implementation of patent law, some firms were required to pay huge The Carpet Cluster in Gaziantep 133 fines and others went bankrupt. One average, however, the firms adapted to the new circumstances very quickly and made original design a principal constituent of their strategy. In a very short period of time the cluster was transformed from one that stole designs from the leading firms in the industry to one that invested in, developed and exported creative designs. Although these developments have generally been welcomed by the cluster firms since it is recognized that design and quality are the real com- petitive factors that differentiate firms in an environment where inputs are available to all at more or less at the same terms, serious attempts to build brands have yet to take place in Gaziantep (a notable exception is Merinos). As noted earlier, the cluster firms instead capitalize on the good reputation of Turkish carpets in the world market. Some scholars (for example Temel et al., 2002) are sceptical about the competitive prospects of the cluster, given that developing and neighbouring countries are key export destinations for the cluster’s products. There are also problems with marketing and after-sales service (Eraydin, 2002a). The firms themselves, however, are very optimistic about their future prospects and expect Gaziantep to replace Belgium as the world’s leading centre for machine-woven carpet production within a couple of years, given that Belgian manufacturers have found it difficult to compete with Gaziantep across a broad range of products and have tended to narrow their range. Before closing this chapter it should be reiterated that the Gaziantep economy does not exclusively rely on one sector, unlike that of Denizli. It is envisaged that the structure of the economy will remain the same (Özsabun- cuoglu et al., 1999) and that the food (flour, pasta, meat and related products, milk and related products, alcoholic beverages, olive oil), textiles (yarn, cotton fabrics, woollen fabrics, carpets), leather (leather processing, footwear), soap and miscellaneous machinery sectors will continue to prosper. Gaziantep’s success is of symbolic importance, given the low level of development attained by the other provinces in the region. In this regard Gaziantep is considered an important regional centre, and there might well be spillover effects on neighbouring provinces, as can already be observed in the case of Kahramanmaras. The analysis of the Gaziantep carpet cluster reinforces the main conclusions of the analysis of the towel and bathrobe cluster in Denizli. In both cases the quality of the local environment is of determining importance in res- pect of the nature and sustainability of competitive advantage. Moreover both clusters have accumulated considerable experience in the general field of activity, coupled with the local availability of resources and an entrepreneurial spirit. However competitive pressure is more pronounced in Gaziantep, and firms in the latter are much more reluctant to collaborate. Competitive pressure – both national and international – and how firms and entrepreneurs react to this pressure appear to be key factors in the dynamism of the Gaziantep cluster and the sustainability of its competitiveness. In fact the 134 Clusters and Competitive Advantage latter is one of the factors that differentiates the cluster from the furniture cluster in Ankara, the other being that Gaziantep has accumulated consider- able knowledge and experience of conducting international business, an advantage that the cluster in Ankara lacks. 135 7 The Leather Clothing Cluster in Istanbul The processing of leather and production of leather goods are traditional industries in Turkey, and Istanbul has historically been a centre of production and trade in this respect. 1 This chapter examines the leather clothing cluster in Istanbul, which has gone through a strategic transformation over the past two decades. Interestingly, the change in the strategic orientation of firms has been accompanied by changes in the location of the industry within Istanbul, with the production and sales functions being concentrated in different locales. Specifically, the tanneries and factories are located in Tuzla, and firms that target the upper end of the market have retail outlets in Zeytinburnu while those which target the lower end of the market utilize the marketing channels in Laleli (Figure 7.1). The analysis of this cluster will therefore provide us with new insights into the evolution of competitive advantage in clusters and enable us to comment on the dynamics associated with the location of different activities in the value chain. Additionally, an analysis of the informal Laleli market will provide us with the opportunity to highlight a relatively understudied topic in the literature on clusters; that is, the fact that transnational linkages are formed not only by multinational enterprises but also by small entrepreneurs (Yükseker, 2003), and that informal transnational activities might also cluster in space. Since the emergence of informal cross-border trade from Laleli in the late 1980s after the collapse of the Eastern bloc, official statistics have failed to reflect the true export performance of the industry. It is estimated that informal trade in leather garments amounts to $2.5 billion, while registered exports of leather garments stand at $300 million (SPO, 2000). Istanbul accounts for more than 80 per cent of total Turkish leather exports (ITKIB, 2003), and it can safely be argued that this figure is much higher as most informal trade is conducted in Istanbul. According to official figures, Turkey’s current world export share in leather garments (SITC 84811) is around 10 per cent. Thus even if only registered exports are taken into account, it is clear that Turkey is among the top exporters in this product category, together with China, India and Italy (ITC, 2002). The leading registered 136 Clusters and Competitive Advantage customers of Turkish leather garments are Germany, France, the Russian Federation, Spain, the United Kingdom, the United States, Austria, Switzerland, Belgium, Luxemburg and the Netherlands, while the main destinations for informal sales are the Russian Federation, the CIS and Eastern Europe. Turkey also imports some leather garments (valued at about $12 million) from India, China, Germany, Pakistan and Italy (SPO, 2000, p. 79). Origins and historical development Leather making in Anatolia can be traced back to the Hittites (1400 BC), and it is known that the Asian Turks produced fine leather products at least 2400 years ago (Yelmen, 1992). Istanbul’s emergence as a leading centre of leather making, however, is mostly associated with the early Ottoman era. 2 Ottoman rule started in Istanbul in 1453. The city became the capital of the Ottoman Empire a few years later and stayed so until the empire collapsed in the early twentieth century. The conqueror, Sultan Mehmet II, paid attention to the economic development of the city in general and that of the leather industry in particular. It was Sultan Mehmet who encouraged the founding of a leather industry in the district of Kazliçesme (Figure 7.1), which remained the heart of the industry for more than 500 years, until its move to Tuzla in the early 1990s (Yelmen, 1992; Kuban, 1996). There were about 360 tanneries in Kazliçesme in those early years, surrounded by workshops that specialized in the manufacture of products used in leather processing (Kömürcüyan, 1952; Yelmen, 1992). During the expansion of the Ottoman Empire, considerable progress was made by the Kazliçesme Zeytinburnu BLACK SEA SEA OF MARMARA Laleli Tuzla Figure 7.1 The Istanbul leather industry, production and sales sites The Leather Clothing Cluster in Istanbul 137 tanning industry. In fact the sixteenth and seventeenth centuries were the golden years of the Ottoman leather industry, 3 which made all the shoes and other leatherwear required by the empire’s far-flung armies (Union of Chambers of Commerce, Industry and Commodity Exchanges of Turkey, 1958, p. 3). Leather was used not only for footwear but also for clothing, saddlery, upholstery and bookbinding (Faroqhi, 2000; Mantran, 2001). Some items were produced especially for the Ottoman aristocracy, such as imperial gowns for sultans, leather saddlebags and leather-bound Korans. In the sixteenth century, leather making was also an important pursuit in Edirne, Kayseri, Ankara, Bursa, Konya, Tokat and Diyarbakir (Figure 7.2), but although the ‘various tanneries scattered all over Anatolia were in continuous operation to supply the needs of the vast territories of the Turkish Empire’ (Union of Chambers of Commerce, Industry and Commodity Exchanges of Turkey, 1958, p. 2), Istanbul was clearly the principal centre of leather trade and production (Faroqhi, 2000). While Istanbul’s tanneries were still con- centrated in Kazliçesme in the eighteenth century, other processing units had sprung up in Eyüp, Tophane, Üsküdar and Kasimpasa (Yelmen, 1992). During this golden era, leather produced in Istanbul was exported to some European countries. In fact historical records reveal that the technological aptitude of the industry in this era was supreme (Adnan, 1935), and that some Istanbul craftsmen gained international recognition for their skills (Faroqhi, 2000). Moreover it was not uncommon for foreigners to go to Turkey to learn the methods and secrets of leather making, and in the eighteenth century a French doctor and an English citizen were rewarded for their success in this mission. 4 Bursa Izmir Burdur Seydisehir Aksehir Konya Kayseri Iznikmid Ankara Istanbul Kangri Sinop Benderegli F igure 7.2 Leading centres of leather production and trade, Turkey (current borders), sixteenth and seventeenth centuries Source: Adapted from Faroqhi (2000). [...]... leather processing, leather goods, fur, footwear, leather-related chemicals and machinery, two other sectors – textiles/ apparel and tourism – have contributed substantially to the development of the leather clothing sector 148 Clusters and Competitive Advantage The role of chance and the government The most outstanding chance event for the leather clothing cluster was the emergence of a strong demand... its imports of semi- and fully processed leather (Öz, 1999; ITC, 2002) Raw leather is a by-product of the meat industry and is therefore procured from the animal husbandry sector Most animal husbandry takes place in rural areas and not all slaughtering is formally registered in Turkey Raw leather was an important export item until the 1960s, but thereafter the development of the leather goods sector resulted... concern to the leather clothing industry (SPO, 2000) There is a need for more working capital, as dictated by the dependency on imported raw leather and seasonal fluctuations in the demand for leather products (Öz, 1999) Finally, although there are quite a number of leather-related research and education institutions in Istanbul,10 the quality of the services they provide is hampered by their serious... Clusters and Competitive Advantage the Russian crisis and the increased competition in price-sensitive segments following the entry of China, India and Pakistan Competition, however, is also tough at the upper end of the market, with competitors such as Italy, France and Spain, and the cluster firms are under severe pressure to develop sustainable competitive advantages in order to avoid being stuck in the. .. producers from Italy, Spain and Portugal are the main competitors at the upper end of the market.17 The contribution of the chemicals and leather machinery sectors to the development of the leather clothing industry is noteworthy In the early stages of the leather clothing industry almost all its machinery was imported, but now some internationally competitive local firms are producing the required machinery,...138 Clusters and Competitive Advantage In the nineteenth century, however, the Ottoman leather industry started to decline, together with the empire itself The gradual recession was a consequence of the reluctance of the industry to adopt new techniques and the absence of training (Union of Chambers of Commerce, Industry and Commodity Exchanges of Turkey, 1958), as well as the 1838 Ottoman–... makes them very vulnerable to fluctuations in demand in these countries It was only in the late 1990s that they started to look for opportunities in other markets, the most likely candidates being the Far East, North America and Scandinavia (SPO, 2000) With regard to firms’ strategies, there has been a move towards the highquality, high-value-added end of the market This was mainly triggered by 146 Clusters. .. sector fell between that in China and Pakistan on the one hand, and Italy and Germany on the other (SPO, 2000) Thus low-cost labour no longer constitutes a key advantage for Turkish leather clothing producers, which has strategic implications for the future prospects of the Istanbul cluster, as will be discussed at the end of this chapter Financing difficulties and the high cost of energy, which create... exports processed leather, the value of imports far outweighs that of exports.12 The Turkish fur industry is concentrated in Istanbul and has obvious links with the leather clothing sector As with the producers of leather garments, fur clothing producers have to import most of their raw materials because domestic supplies are insufficient Nevertheless, the industry is competitive, and the quality of its... suitcases and other items (SPO, 2000).5 In the early years of the Turkish Republic, before state planning was introduced, leather making maintained the nature of a craft activity,6 a notable exception being the activities of the giant Sümerbank However in the 1950s, when the country’s economic policies were relatively liberal, there was a gradual development of the industry This continued in the 1960s and . 369 1 Manufacture of jewellery and related articles 2.8 966 70.91 3220 Manufacture of television and radio transmitters 2.8578 69 . 96 64 12 Activities of other transport agencies 2. 763 1 67 .64 . Business and management consultancy activities 2.7542 67 .42 369 9 Other manufacturing n.e.c. 2.7304 66 .84 5131 Wholesale of textiles, clothing and footwear 2 .66 96 65.35 2919 Manufacture of other. sustainability of its competitiveness. In fact the 134 Clusters and Competitive Advantage latter is one of the factors that differentiates the cluster from the furniture cluster in Ankara, the other being