Four variables have been found to have critical importance in maintaining the competitiveness of the Turkish manufacturing industry. These are the surge in productivity, keeping wage increases below the productivity level, product differentiation and contribution of cheap imported inputs and the cost of capital. As measured in terms of these parameters, it can be observed that the auto manufacturing, electrical equipment (consumer durables), industrial machinery and equipment, and chemical and steel production sectors have successfully managed the recent competitive pressures and transformation process. In their good performance, productivity growth, setting wages in line with normal profitability, the capacity to reduce capital and input costs and finally success in differentiating product mix have been critical factors. This success has brought about remarkable output expansion as well as high export and employment performance.
However, there are other sectors that failed to adjust to the environment of increased competition. Among the sunset industries, traditionally low-skilled labor and low-cost local input sectors stand out the most. And among this set, the textiles and apparel industry -- which represents one-third of total manufacturing output and employment - is the most prominent. These sectors failed to increase their productivity, moderate their wages and differentiate their products at a sufficient pace to maintain their competitiveness. It is not surprising, therefore, to see that their output, export and employment performance declined significantly. The most serious negatives in the erosion of their competitive strength are cost factors due to labor intensity, in which China has incomparable advantages.
Other than these two groups, there is a large group of sectors somewhere in the middle on the competitive spectrum. According to the findings, they experienced varying levels of price pressures, productivity and wage growth. Gains on capital and input costs were generally significant but not large enough to neutralize pressures on competitiveness. The manufacture of electronic goods (radio, TV and communications equipment), furniture, plastics and food products are in this category. Their output, export and employment performance generally remained average.
As we can see from the figures below, quality improvements and rising productivity have been the most prominent factors in preserving competitive strength in Turkey. This is quite good news. However, it is also true that the real exchange rate, wages and export prices have not been favorable in the last six years.
Based on these observations, the following sectors are predicted to have competitive power in the future.
Apparel and clothing accessories
Textile yarn and related products
Land vehicles
Iron and steel
Electrical machinery and appliances
Vegetables and fruits
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