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5.7 Challenges facing exporters

Unfavourable sentiment towards Chinese imports

Notably, the Turkish economy is still highly dependent on certain manufacturing sectors, such as ready-made clothing. But increasing imports from China, especially after the liberalisation of the textile trade, including the expiry of textile quotas by the end of 2008, have resulted in intensified competition in the market, stirring up certain unfavourable sentiment among Turkish companies towards Chinese products.

In addition to textiles and clothing, there is also a strong similarity between certain Chinese and Turkish exports. These include a number of labour-intensive products such as footwear and leather goods. There is thus keen competition between Turkish and Chinese products in some markets, particularly in West Europe, in addition to the local Turkish market. As a result, unfavourable sentiment towards Chinese products may continue to spread from textiles to these sectors, not to mention Turks’ criticism from time to time over Chinese treatment of Uyghurs.

Protectionist measures

Despite the expiry of safeguard quotas against various Chinese textile products by the end of 2008, new protectionist measures such as the new registration requirements for imported textile and clothing products have been erected in order to protect the interests of local textile/apparel industries. Other protectionist measures include a bewildering array of anti-dumping duties and extended safeguard measures covering electrical appliances, motorcycles, matches, footwear, travel goods, handbags and similar containers. Imposition of such measures has in effect discouraged Turkish companies from sourcing such items from the mainland. On top of China-origin products, Hong Kong traders should keep an eye on the recent anti-dumping order concerning imports of tempered glass lids, imposed for five years with effect from 23 May 2010, although there is no apparent trade implication for Hong Kong as it does not have any export or re-export of the subject merchandise to Turkey since 2009.

Small orders

Some Turkish companies are already sourcing from the Chinese mainland or from Hong Kong, and are familiar with trade fairs in the region. Their order quantity may be on a full-container-load basis. But it is more common for Hong Kong or Chinese exporters to receive an order for less than a container load when dealing with small-sized Turkish importers. In fact, Turkish orders are deemed to be smaller in quantity, due partly to the fact that many companies are still at an early stage of sourcing from Asia.

Trade-financing problems

Payment by Turkish companies for sourcing from China is mainly made by a partial deposit (e.g. 50% upon order confirmation), followed by the balance upon shipment. Some are also asking for open credit for a certain balance of the payment (e.g. 50% for 60 days after shipment). Letters of credit are rarely used, as costs incurred are very high in Turkey.

On the other hand, Turkish importers usually collect payment from their customers (e.g. wholesalers and retailers) on open credit terms at 60-90 days. But it is relatively difficult for them to secure trade financing from banks. Thus, Turkish importers have to finance the trading business with their own capital.

It is also very common for Turkish traders to receive a “post-dated” cheque for payment from distributors, revealing a serious problem of financing in the supply chain. Such a problem in trade financing has become severe especially after the economic crises in 1994 and 2001/2002, which sparked substantial devaluations of the Turkish currency.

In view of the financing problems, multinationals like GE and Philips are reported to grant open credit to Turkish distributors even up to six months (but at higher prices) in order to penetrate into the market. This has posed keen competition for other importers who are constrained by their financing capabilities. Therefore, Hong Kong companies should take note of the likely credit risks when dealing with Turkish traders.

Country risks

The Turkish currency has suffered from substantial depreciations during the past and recent financial crises (e.g. the Turkish lira dropped more than 20% against the sharply rising US dollar between September 2008 and August 2010), effectively hampering the payment ability of most Turkish importers. With a widening current account deficit (which jumped 180% in the first half of 2010), the European debt crisis may make meeting Turkey’s external financing requirements more difficult and become another major source of concern for Hong Kong exporters. Apart from financial volatility, persistent political tensions between the army and the government also make business conditions more complicated.

 

Content provided by Hong Kong Trade Development Council
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