Turkey · refined petroleum products,Tüpras is also a producer of petrochemical products.Petkim is the major petrochemical producer of Turkey,feeding 30 % of the Turkish demand

Turkeyp r o f i l e

Joining Chemistries

O n the threshold of Europe, Turkey, with a popula-tion of 70million and a dynamic economy, is tryingto move ahead and forget about the political insta-

bility, economic crisis and other ordeals that have plaguedthe country over the last two decades.The advent of a oneparty majority under the leadership of Prime MinisterRecep Tayyip Erdogan was the signal that the country hadeagerly awaited for to press ahead with the necessary eco-nomic and political reforms required by the EU to startaccession negotiations.Two years on,Turkey has reformed alarge number of fundamental socio-economic parameters,curbed the 15 years of insurgency in the East and has grant-ed renewed rights to its Kurdish minority. The EuropeanCommission has advised in favour of the start of discussionsfor the accession of Turkey to the EU and in December, aformal date is expected to be set for the process to begin.Turkey is now waiting for the decision that will sustain themomentum of its ambitious reform agenda and shape itsdestiny for the next decades.

Since the massive financial crisis in 2001, Turkey hasstrengthened its economy, displaying robust growth(2003:5.8%), enjoying double digit increases in industrial outputindicators and expanding exports throughout the world,with, for instance a 30.5% increase year on year in 2003 fora total amount of $47 billion. Now the largest exporter oftextile products in Europe,Turkey has also consolidated itscredentials as a car manufacturer, a metal producing coun-try, an agricultural powerhouse and a tourism destination ofchoice. The international investment community is finallyrecognising these credentials. According to recent predic-tions by the Institute of International Finance (IIF), as muchas 60% of the portfolio equity that flows into Europe's

emerging markets will target Turkey next year. Meanwhile,on the back of the country’s good economic performanceand the progress in its privatization process, Turkey isexpected to attract $2.8bn of foreign direct investment(FDI) in 2005, with $2.4bn expected to be achieved by theend of 2004; this after years of abysmal performances.Yet,since the 1980s, the Turkish government has followed liber-al, out-ward-oriented economic polices, shaking up theeconomic and social structure of Turkey. Deregulation ofinterest rates, the establishment of organized markets formoney, foreign exchange and securities, the liberalization ofcapital movements and reform of the banking sector werejust some of the changes. The FDI framework has alsorecently been simplified and Turkey continues to make a lotof effort to promote itself as a safe and sound investmentdestination.The incentive scheme is currently being dustedoff and a strong PR campaign has been initiated to raise theprofile of the country towards the global investment com-munity.

Serving the many industries of Turkey, the domesticchemical industry is also expanding steadily and has startedto attract foreign investments too. From the early days ofimport substitution policies in the 1960s through to theultra aggressive export promotion policy of Prime MinisterTurgut Ozal in the 1980s, the chemical industry has playeda key part in the country’s industrial development and istoday integrated into the supply chain of national industriesespecially, textiles and the automotive sector, while alsoscoring the occasional export sale in a region where Turkeyis both a gateway and an almost compulsory point of tran-sit.The industry achieves an overall turnover of $18-20 bnyearly. Domestic production totals $11 bn, with imports of$9 bn to top up the bill, and chemical products exportsreach $1.5bn, or $3.5bn including intermediaries.

The industry, employing 50,000 people across 6,000Small and Medium Enterprises, is a key component of theTurkish industry, both from the perspective of its relativesize and importance for the economy, and as a part of theoverall Turkish supply chain and industrial fabric. It hasgone from strength to strength.W ith direct access to Iranand Iraq, and constituting a major transit point for Russianhydrocarbon products as well as benefiting from long-standing trade partnership with the EU notably based on a

November 24, 200434

Introductionchemicals in turkey: Bridging the Gap?

A Global Business Reports Publication,presented with Chemical Week

This report was prepared by London-based Global BusinessReports after meeting with some of the chemical industry’s leadersand upcoming players. It highlights some of the elements faced bythe Turkish chemical industry at times of changes by the country asa whole. Authors are Guillaume Vigneron and Luke Gribbon,([email protected]; [email protected]) chemicalreporters, and Alice Bourrouet, project and marketing coordinator,Global Business Reports. ([email protected])cover picture: span across Europe and Asia,Turkey is a meeting point.Credit:Yaz Yazicioglu 2004

COUNTRY FOCUS: TURKEY

November 24, 200436

Customs Union,Turkey has a solid tradition of internation-al trade. The chemical industry, mainly inward looking inthe past, is today increasingly raising its global profile andambitions.

As a key contact point between Asia and Europe, theMiddle East and Central Asia,Turkey is poised to be a logis-tical center of choice. For years, insufficient port capacities,the lack of rail infrastructure and bad roads have hamperedthis potential.Today, things are changing. Private sector ini-tiatives, an increase in demand for state of the art logisticalsolutions and further potential for growth leave ample roomfor more development in the logistics segment. (SeeLogistics)

The Turkish chemical industry is fragmented, with over6,000 companies in the sector, of which 90% are SMEs andonly 150 large scale enterprises, with 60 companies makingup 65 % of the sector’s revenue.The main companies of thesector are state-owned refining and petrochemical produc-ers Tüpras and Petkim.The two companies share a commondestiny, as both have been on the privatisation list for yearsand have experienced stalled attempts on more than a fewoccasions. Providing up to 84% of the country’s needs inrefined petroleum products, Tüpras is also a producer ofpetrochemical products. Petkim is the major petrochemicalproducer of Turkey, feeding 30 % of the Turkish demand.This leaves ample room for imports of plastics and the mar-ket absorption capacity is decidedly on the rise on the backof consumption increases in the automotive and homeappliances industries. The privatization of Petkim, with a

first phase expected to be completed by mid-2005, is alsowidely anticipated by the sector at large and by the inter-national investment community. (See Petrochemicals andPrivatization)

Meanwhile, heavy and specialty chemicals, although nothuge in terms of the scale of production,makes it up in style.Small to medium size private producers are fueling the sec-tor with dynamism and ambition and enjoy the benefits ofa huge domestic market featuring increasing consumptionlevels. Their story is also that of Turkish entrepreneurs ingeneral, learning to cope with the uncertainties and theinstability that have plagued the country’s economy for twodecades.This difficult environment gave birth to a wealth offorward-thinking companies that provide Turkey with agood production base which can easily nurture furtherinvestment in production capacities. ( See Alchemy for suc-cess) Paint makers notably account for some of the mostdynamic operators in the country, and have attracted muchforeign attention. (See Paints)

The country is also host to a buoyant pharmaceuticalindustry that has prospered servicing the national healthsystem. Now facing the tightening of margins due to theongoing painful reform of the social security system and theraging competition brought to the market by internationaldrug-makers, the local players are turning to internationalmarkets for breathing space. Local competencies are proven,but major markets like the United States aren’t easy to pen-etrate. Here again, Turkish manufacturers are striving toreach international standards and reinforcing their presenceon global markets. (See Pharmaceuticals in Turkey: strongremedies required)

All in all, the country has gone through a stunning trans-formation since the last financial crisis 3 years ago. Once acountry wrought with constant economic meltdowns, thenew political and economic stability of today means thatmanagers no longer have to concentrate on crisis manage-ment, but can concentrate on day to day management andfuture strategy.Although by no means in the clear, the earlyindicators are that real progress has been made and thechemical sector is one of the sectors that has really benefit-ed from Turkey’s renewed strength.



November 24, 2004 37

Big fish in a small pondThe Turkish pharmaceutical market is

relatively small compared to the sheer sizeof the country and its population (morethan 70 million) at around US$3.7bn ofsales in 2002 at consumer prices. It is a sadacknowledgement of the past weaknessand caution of the Turkish pharma indus-try that the names of its largest players:Abdi Abrahim, Bilim, Eczacibasi orMustafa Nevzat, do not resonate muchwith western consumers, nor with theglobal industry.After all, time was on theirside: most of the major players in thepharma sector were established concur-rently with the birth of the Republic inthe early twenties and this duration and maturity shouldhave led them to exert a natural lead over Indian and EastEuropean newcomers to the generics market. Yet, today,Turkey is still lagging well behind its true potential. It relies,for instance, heavily on imports from European producersto fuel its demand for biotechnology products and intensivemedicines like anti-cancerous drugs and hormones andachieves relatively low levels of exports sales. For instance,in 2003, 2.4bn dollars of imports were to be compared with246m dollars worth of exports. These exports, initiated inthe late 1970s, first reached Middle Eastern and NorthAfrican countries, before being redeployed in the 1990stowards the Russian Federation, Azerbaijan, Germany,Holland,Austria, Switzerland and Belgium.

Despite selling products to these highly demanding mar-kets, Turkey still appears to punch well under its potentialweight both at home and abroad.The explanation for thelocal manufacturers failure to take the initiative resides bothexogenously in the economic troubles that have continual-ly beset Turkey, in the governments failure to offer the kindof incentives used elsewhere in developing countries tonurture the pharmaceutical industry and also in the com-panies’ own lack of desire to expand beyond a marketwhich did not recognize patents until 1997 and thus pro-vided easy pickings for generics players. But a revolution inattitudes is underway. As Dr. Cengiz Sezen, Chairman ofMustafa Nevzat strongly affirms: “the export business istoday the major hope for local companies.”And within thatray of hope, one particular export market shines extremelybright for all the major players as one player, BulentKaraagac, President of Bilim, wryly observes : “The US isthe logical choice for exporters.After all, that’s where all the

money is.” All of the Turkish players arehopeful that investments in the US andwestern markets will prove fruitful in thelong term. Their analysis is based onsound reasoning: the prospect of manypatents expiring in the US market overthe next 3 to 5 years. The competencedisplayed by Turkish pharmaceuticalsproducers in meeting FDA standardsmeans that this hope is a realizable aim.Yet what differentiates these potentialnew entrants to Western markets fromother generics producers?

Raising standards to European levels,should certainly give the Turkish phar-maceuticals industry an advantage.Added

to this are ambitious production capacity expansions set toraise the profile of Turkish companies. In 2003, GoodManufacturing Practice and Good Laboratory Practiceinvestments totaled 37.5m dollars out of a total investmenteffort of 84.8m dollars across the sector.The total figure isvery low and it is reckoned by the Turkish PharmaceuticalManufacturers Association that a minimum of 100m dollarsyearly investment effort is necessary to allow the industry tosustain its competitiveness.Yet some take this task very seri-ously.

At MN pharmaceuticals, one of the leading integratedgeneric manufacturers of Turkey, $63m were invested overthe past four years, both on the manufacturing of ActivePharmaceutical Ingredients and on the finished dosages,under cGMP standards.This year, the envelope is 6m, com-pleted by a further 10m capital expenditure in 2005. AbdiIbrahim and Bilim are also in the midst of ambitious expan-sion plans with Abdi Ibrahim set to further expand theirstate of the art production facility and Bilim ready to builda new plant in the Istanbul region. Meanwhile, Deva, anoth-er pharma maker with its own API manufacturing facilitiesis also nurturing a full cGMP-compliant facility outside ofIstanbul, with the clear objective of making it an argumentof weight in any future cooperation with a potential USPartner. “We prefer to go to the FDA with an Americancompany, and our preference is for a contract manufactur-ing joint venture here in Turkey, starting from the APIs wealready produce. This integration gives us competitiveadvantages on price and quality control” underlines DrUmran Uzbek, Managing Director of Deva Holding.

Excellent standards and ultra-modern facilities aside, allcompanies point to their credibility built up by long-term

Pharmaceuticals in Turkey:strong remedies requiredThe predominantly generics-focused pharmaceutical producers of Turkey face stiff challenges both at home and abroad. For thelargest domestic players in particular, times are changing. On the home front, the generic manufacturers’ biggest customer, theTurkish state, is in the process of consolidating three social security models and is imposing tight price controls on drugs.Whenplaying away,Turkish pharmaceutical companies see differentiating themselves from the competition as the major challenge.Willthe hurdles abroad prove easier to master than the troubles at home?

Turkish manufacturers have put a lot of effortsinto cGMP-GLP standards compliance. Shownhere are the facilities of MN pharmaceuticals.


co-operation with foreign partners. Eczacibasi, a versatileindustrial group, has a web of alliances with over 30 foreignpartnerships in many domains of production and has forinstance struck a contract manufacturing deal with US-based IVAX. Others think it is longevity and quality thatcounts more than quantity. MN Pharmaceuticals, recentlyrebranded, has a long-standing relationship with Eli Lillythat has withstood 50 years:“some marriages don’t last thatlong” jokes Dr. Cengiz Sezen, MN’s Chairman of the Board“and we’re always open to foreign partners who see ourspecialization and appreciate our expertise in injectables.”Adbi Ibrahim, through a combination of chance and designhas also allied with foreign firms, but of the medium,regional size rather than mighty multi-nationals. Its alliancewith the Korean pharmaceuticals bit-player, LGPharmaceuticals is the latest in a long list of strategic part-nerships. When questioned as to why allying with smallerfish was advantageous, Erman Atasoy, CEO of Abdi Ibrahimsmiles and puts it simply “we feel that these companies arenot threats to our domestic position – they don’t have thescale to enter this market so it’s beneficial forus and we provide the access they need.”Caught in licensing nets?

Reading between the lines of what Mr.Atasoy highlights, it is clear that a significantpotential danger for Turkey’s generics produc-er is over-reliance on an alliance with a singleparticular Pharma giant. The potential fordependency is most striking in licensingagreements which leave the domestic produc-er with the risk of their foreign partnerupping and leaving. Mr. Atasoy’s strategy ofallying with smaller players is one way of get-ting around the ‘loving and leaving’ risksinherent with multi-national partnership. Another is thatpursued by MN Pharmaceuticals which has built up suchstrength in parenteral drugs and lyophilized injectables thatit is in the position of being courted by a number of larger‘across the board’ generics firms who see, what Mr LeventSelamoglu, it’s General Co-ordinator wryly calls the“injectable company,” as offering a great complement to therest of their product range. Bilim also sees the danger inlicensing agreements and Mr. Bulent Karaagac, President ofBilim, remarks rather proudly that “we have very few prod-ucts under license.We are a 100% branded generics compa-ny, and therefore we are completely independent fromlicense or distribution agreements.” If there is any Turkishpharmaceutical company caught in licensing agreements toa rather alarming extent it is the Turkish conglomerate,Eczacibasi. Yet the plethora of strands that form the webmean that it too can withstand the ending of a foreign part-nership without much damage.The recipe for success

All of the above aside, in such a crowded global pharmamarket, what is it that will help Turkish companies stand outfrom the rest? The magic ingredient for Turkish pharma toplace them above their competitors seems to be activeingredient research. Specialization also seems part of therecipe for success, and combining both promises much. Byusing the products and strength of its active ingredient sistercompany,Unifar,MN Pharmaceuticals can be applauded fororientating its search for foreign partners to those whoappreciate innovation in active ingredients in a specializedsector such as injectables rather than solely generic produc-tion. Mr. Karaagac of Bilim also attaches great importance

to R&D and new product investment: “We have goodR&D knowledge and technology, that’s our comparativeadvantage.” Dr Umran Uzbek, MD of Deva Holding, whenasked what is the decisive factor that should help Deva inthe challenging years ahead, emphasizes on quality: “Ourefforts to be cGMP compliant and our constant efforts forquality is what will keep us ahead of our competitors andwill be the basis of our partners confidence.”Problems faced at home by the pharma industry

If things are expected to be rosier in the European and USmarkets, on the domestic front the picture is rather greyer.Consumption of pharmaceuticals is the lowest in Europewith around USD $50 of the country’s annual per capitahealth expenditure of USD $ 160 attributable to the pur-chase of pharmaceuticals. Although this consumption maybe picking up, other structural problems confront Turkishproducers. Primary amongst these problems are those of thetime lag between pharmaceutical companies requestingregistration from the government and the registration beingforthcoming. Concerning the health authority regulators

Mr. Karaagac of Bilim concedes “They aren’table to respond to our needs. We meet ourobligations but they cannot keep up with us.”Mr. Eczacibasi, President of EczacibasiPharmaceuticals, smiles and rather diplomati-cally concurs “it has been a struggle with theauthorities.” Further consolidation in thesocial security sector where three separatedrug refund systems are in place also offersfurther risks and opportunities. “The Turkishreimbursement system is very complex, thesimplification is appreciated but it could leadto further frustration” explains an analyst inthis field. Besides, bureaucratic obstacles have

always caused problems for Turkish pharma and now theymotivate Turkish generics companies to look further afieldwhere the grass may be greener.

Yet the looming issue of data exclusivity agreementscomplicates even this ‘internationalized’ view of the futureof the Turkish industry. Data exclusivity binds the domesticand the international domains of business inextricablytogether, but domestic government efficiency is a key needfor guaranteeing data exclusivity.The Turkish generics man-ufacturer’s representation body has therefore suggestedholding back on data exclusivity until later in the decadebut, regardless of the timing, what the issue signals is that tocompete effectively abroad, the generics manufacturersmust not only be strong in their own markets but help cre-ate facilitative domestic market conditions. As the pictureblurs between the two domains of domestic and interna-tional within the pharmaceutical industry,Turkish compa-nies are realizing that both the home and international mar-kets offers promise and potential, both for failure and suc-cess. Profitable pharma beyond home turf means gettingthings right domestically.

One of the ways forward might be looking at the nexttherapeutic class of products that could become the nextmarket winner. Deva Holding is, for instance, consideringmoving into cardiovascular system preparations. Anotherway might be thinking bigger, and therefore going througha necessary phase of rationalization and concentration of theindustry. In today’s pharmaceutical industry, small is nolonger beautiful, and the costs involved in developing a solidpipeline of generics and successfully taking on board themarketing and registration burden means that the critical


November 24, 200438

Fighting hard enough to produce for the world?


mass to reach entry level in the market is higher than ever.Considering the sheer size of the pharmaceutical players inTurkey, one can see concentration as the only way forward.Whether this happens on a pan-national basis, or betweenlocal and international players, largely depends on what theTurkish manufacturers can bring to the deal.A strong fam-ily background for most of the local contenders implies acertain resistance to merging with organizations withinTurkey, as companies have been looking at each other witha certain dose of mistrust and jealousy. These reflexes aretoday being erased by the necessities of the market, but nev-ertheless, the country has not seen many major cooperativedeals between pharmaceutical operators and even if the leveland quality of discussion has largely improved thanks to therole of associations like the Pharmaceutical ManufacturersAssociation (IEIS), the prospects of purely national mergersand acquisitions is limited.

Beyond the national borders, Turkish manufacturers areattractive mainly to global players willing to have a cheaperand well located manufacturing base. In 1999, local manu-facturer Ilsan Iltas was acquired by German firm Hexal.Milen, a Turkish API maker was also added to the venture,and Hexal completed the acquisition trail in 2001 with thepurchase of Koz Pharmaceuticals/ Biokem.These examplesshow that there are many local credentials that make perfectbusiness sense for foreign players to venture into the Turkishmarket. For Turkish manufacturers, to become fully fledgedglobal partners will entail stepping up manufacturingcapacities and keeping costs under check. It will also requirethe world to look at Turkey with new eyes and realize that,for the pharmaceutical sector too, at the crossroads ofEurope, Asia and the Middle East lies a country of greatpromise whose true potential still remains to be tapped.



T he privatization process in Turkey has never taken asmooth ride. Delays, legal challenges and otherbumps in the road have punctuated the last 20 years

of efforts.Today, and following the requirements of the IMFsponsored assistance package, the privisation process hasbeen re-ignited with Turkish Airlines, Tekel, Petkim andTüpras being some of the more well known names on thebloc. However, eleven months into the year Tupras andPetkim are already behind schedule. While Tüpras is run-ning into legal challenges, there are indications that long-delayed Petkim seems to be going ahead and could see thefirst phase of its privatization completed by mid-2005.Tupras: Legal challenges

The bloc tender of a 65.76% stake, owned by thePrivatization Administration (PA), was held in January2004. Efremov Kautschuk GmbH and the Zorlu Groupconsortium submitted the highest offer at US$1.3bn (valu-ing the company at US$1.98bn). As a 50/50 joint foreignand domestic bid, Efremov and Zorlu seemed like idealcandidates for the purchase, however, Petrol-Is, the labour

union representing the state employees, took the case to thecourt, arguing that the tender did not fit the legal rules andprocedures as laid out by the state. Ruling on a petitionlodged by the labour union, the 10th Administrative Courtof Ankara ruled against the Tüpras deal, stating that not onlydid the bid fail to satisfy the tender convenants but that thebidding process was not competitive due to the limitednumber of participants.

Although this legal process has been bouncing backwardsand forwards since the initial award was made in January, thecurrent ruling means that many feel that it will be at leastanother year before a resolution can be found.

Aside from the legal implications, analysts had previouslycriticized the award as placing too much strain on Tatneft’salready overburdened debt pile. Efremov is the German-based affiliate of Tatneft, Russia's 6th major oil company.Unlike the other Russian majors, which have a core focuson Western Siberia, Tatneft’s main assets are located in theVolga-Urals region – the republic of Tataristan.According toChemorbis, the company showed specific interest for

Privatization process:slow motion emergency



November 24, 200440

Tüpras, for the purposes of geo-graphical diversification & down-stream integration.Tüpras purchasessignificant amounts of crude (about23-24mn tons/year), and such apurchase would allow Tatneft a sig-nificant market access.

Zorlu by comparison is a Turkishbased conglomerate with interests asdiverse as home textiles, house holdappliances and energy. Celebratingits 50th anniversary this year, thecompany started from humblebeginnings in the textile field and today enjoys an annualturnover in excess of $1.5bn. Like many other Turkish holding companies, the group has used its deep pockets toexpand into market vacuums where foreign investment haseither been unwilling or unable. This latest venture withEfremov is just one of many partnerships that the companyhas entered into in the past.Petkim:

Not to be outdone by its sister organization, Petkim’s pro-posed sale has also been dogged by controversy. Initially, abloc sale of just under 90% of the company was to be madeto Standart Kimya until financing issues with Standart’s par-ent organization forced the PA to abandon the $605m deal.

Focus has now been turned on an all out floatation ofshares on the Istanbul stock exchange some time in early

2005. It has been suggested that thepublic offering will increase privateownership in the company from 4%up to an estimated 51%. Shareswould initially be offered toPetkim's customers with preferentialconditions before heading for theblock sale. Petkim reported a $40mloss for 2003, but the general man-ager, Kenan Yavuz is quoted by localmedia to be predicting a significantturn around to profitability onincreased revenues next year. The

company attributes increased profitability to higher petro-chemical prices, and savings through organizational restruc-turing, including a switch from fuel oil to natural gas for itselectricity generation. According to Petkim; petrochemicalgrowth rate in Turkey outstrips GDP growth by 2.5%, andis likely to continue this trend.

Although rocky in most countries, the privatization processin Turkey has seen more hurdles than most. The sale ofPetkim and Tüpras are just two examples that happen toaffect the chemical sector.The treasury had hoped to raise atleast $4bn in the sale of government assets this year, althoughonly $744m was achieved in the first six months of the year.Nevertheless, the process is an improvement on previousattempts and the strength of the current government leadsmany to predict that the process will continue, bumps and all.


T urkey is a countrywith a very largeand growing popu-

lation. It is also now aprime destination forinvestment in areas such asconsumer goods, textilesand automotives.As such, itis clearly a key market forpetrochemical products andit displays a solid appetitefor plastics. The TurkishPlastics ManufacturersAssociation, PAGEV, reck-ons that “currently Turkishannual polymer consump-tion of 2.8 million tonsranks the country 6th inEurope just behind Spain.However, the per capitaconsumption is far fromsaturation at 40 kg, (thoughit is higher than the worldaverage) a clear indicationof the bright future. Whenthe consumption levelreaches 75-100 kg, the levelof developed countries,Turkey will become a sig-nificant player in the worldplastic industry with itspopulation of 70m.”Indeed, the $4bn market isalready appealing and itwould seem natural to seeTurkey hosting majorpetrochemical complexesto feed the local demandand use its natural geo-graphical advantage to become an export hub.

Yet, domestic polymer production is relatively low andlocal production hardly covers one third of demand. Localplayers are predominantly state are at the crossroads of theirdestinies as both Tüpras, the country’s main refiner andPetkim, Turkey’s key petrochemical producer, had beenexpected to start their long-awaited privatization processesthis year.

Previous attempts to sell this entity, feeding up to 30% ofthe local demand for polyolefins, have run into controver-sies, delays, cancellations and have ended up by creating 17years of a public relations nightmare for the industry as awhole. The first petrochemical complex of Petkim wasestablished at Yarımca and started production in 1970.Ethylene, Chlorine, Alkali, VCM, PVC and LDPE wereadded by the subsequent addition of CB, Styrene monomer,PS, BDX, SBR, CBR, DDB and caprolactam plantsbetween 1972 and 1976. Due to rapidly growing domestic

demand, the YarımcaComplex soon becameinsufficient and Petkim’ssecond complex was estab-lished at Aliaga in 1985.Later on, most of theYarımca complex wasdecommissioned and theremaining 5 units produc-ing SBR, CBR, CB, BDXand Polystyrene wereacquired by Tüpras in2001, turning the refinerinto one of the main petro-chemical operators ofTurkey.

Today, Petkim controlsthe Aliaga complex, nearIzmir, from where itchurns out a total of 1.5mtons of products annually;400,000 tons of Ethylene,123,000 tons of benzene,516,000 tons of thermo-plastics and a quarter mil-lion tons of raw fiber mate-rials. Petkim is still the pre-dominant petrochemicalproducer of Turkey but isnevertheless producingwell below market needsand therefore expected toincrease capacity to makethe most of the marketshunger for plastics. Thecompany is thus nurturinga number of expansions,most notably a $82m eth-ylene expansion to be

completed in the first quarter of 2005. “There is a 3 yearopportunity on the world market to increase our capacityand benefit from the upward trend of the petrochemicalmarket cycle, before Middle Eastern capacity arrives on themarket” analyses Kenan Yavuz, Petkim’s newly appointedGeneral Manager. “We are also looking at expanding ther-moplastics, Polyethylene, Polypropylene, to reach 800Ktnext year and our medium term goal is to reach 1.5m tonsof thermoplastics production.”Within this scope of expan-sion, LDPE is expected to reach 310kt, and PP 144Kt.

Petkim is already quite clearly benefiting from the posi-tive petrochemical trend as it is expected to return to theblack in 2004, after a series of loss-making years. So iseverything rosy for Petkim ahead of its IPO? Definitely not,as Petkim is trying hard to secure long-term supplies to fuelboth its current capacity and its forthcoming expansion: theethylene cracker is a naphta based unit, and prices have con-tinued upwards which has squeezed margins. Lately, Iranian


November 24, 2004 A Global Business Reports Publication,presented with Chemical Week42

Petrochemicals:plastic hunger

Naphta was thought to be sought after.And on the privatization front, things aren’t exactly exhil-

arating yet either. Tüpras’s current stalled privatizationshows that all is not well for Turkey’s privatization processand the lack of enthusiasm from plastic professionals for thesale of Petkim are further potential worries. The plasticsindustry is skeptical and unimpressed by the performance ofthe state company in recent years and seems rather reluctantto become a direct stakeholder in the organization. As anexample, one such plastic end-users told us that “our confi-dence in Petkim has been affected by the difficulties of thelast years and obviously, the rocky privatization path.Today,asking us to become directly involved in the company’sfuture is like placing a big bet on a weak horse. Yet, wewould love to see Petkim faring well in the years ahead asit is a guaranteed source of material and a company wealways had privileged client-suppliers relationships with.”

Meanwhile, Petkim is facing tough competition from theregion and already provides less than 30% of the marketneeds in plastics. Other local petrochemical producersinclude Baser Petrokimya, the Polystryrene operation of theBaser group, a leading household products maker, which hasa capacity of 40,000 tons, but the world tightness on styrenemonomer has also created difficulties for Baser.Nevertheless, the company is nurturing an expansion planand is actively looking for a partner. Besides these, Sasa, amember of the Sabanci Group, one of Turkey’s leadingholdings, and a project of PET is being nurtured in theEastern parts of Turkey by a local textile group. Putting all

of these operators together, and compared to market needs,local petrochemical production remains sketchy.

This leaves ample room for those who are feeding themarkets needs with imported material. Here, Turkey dis-plays some unique opportunities; online trading platform,Chemorbis is a relatively new operation that has modifiedmarket perceptions and usages in depth.Although it is only4 years old, the platform already accounts for 6% ofTurkey’s plastic spot trading, has over a thousand compa-nies signed up and achieves annual sales traffic in excess of$135m. In a market that imports 70% of its demand, or1.79m tons, such a proposition is a welcomed change to atraditional market as final users as well as traders have start-ed to shift their purchasing habits to use the online plat-form.

Plastic transformers are therefore looking forward tobuoyant years ahead, with plenty of imported and domes-tic raw material, easy trading tools and a local petrochem-ical complex geared up for their needs. Looking ahead, thecompletion of pipeline projects such as the landmarkBaku-Tbilissi-Ceyhan pipeline, and the Blue Streampipeline are further indications that the country’s destinyrevolves around hydrocarbons and their by-products. Theproximity of Iraq and the long-term prospects held by thecountry’s regime change are a further testimony thatTurkey is at the crossroads of geography, and of history. Itspetrochemical industry could benefit from this manifestdestiny in the future provided the path ahead is drawnwith more clarity than over the past two decades.


November 24, 2004 43A Global Business Reports Publication,presented with Chemical Week

T he development of the Turkish chemical industry,very significant for approximately 40 years now, isstrongly based on the dynamism of a myriad of pri-

vate companies, mostly family owned.This situation is definitely a strength for the Turkish

chemical industry. In parallel with the sustained growth ofTurkish industry over the last two years, the level of con-sumption of many chemical products has increased. Thisrepresents a golden opportunity for many SME’s or bigcompanies operating in all the sectors where Turkey des-perately needed to develop its domestic production.

The result is that today, the Turkish chemical industry,equipped with modern technology and brand new equip-ment, generates an important contingent of manufacturerswho have diversified their products and showed steadyimprovements.

From semi-finished to finished products,Turkish compa-nies have placed, for the most part, a great deal of impor-tance in meeting international standards for quality and forthe environment.This explains the success of some domes-tic companies not only on the Turkish market, but alsoabroad: “Big money is to be found in big markets and theinternational market is where you will win” sums up Mr.Nejat Karaagacli, General Manager of BOS, one of theleading industrial and medical gas companies in Turkey.

Turkish companies use all the advantages offered by theirsize (small or medium, by American or European standards)to constantly improve their competitiveness by innovating,training their people, investing in new production capacity,finding new markets overseas and adopting a niche marketstrategy with incredible efficiency.

One example of such a company with a successful histo-


November 24, 200444

Deren Chemical’s laboratory:The quality of Human Resources is another com-petitive advantage to be reckoned with.


Alchemy of success

ry in specialty chemicals is Akdeniz.Akdeniz produces taylor-made sta-bilizer compounds, matching thespecific requirements of their cus-tomers.Under the leadership of Mr.Cem Heris, General Manager andson of the founder the turnover ofAkdeniz was multiplied ten-fold,from $6m when he joined thecompany in 1994, to $60m in 2004;60% of his production is exported.

Cem Heris belongs to this gener-ation of entrepreneurs who allyclear thinking and clear actions tomake their company grow.“For thelast six years, all the profit went backinto the company to grow ourcapacities ($8.5m invested just for2002 and 2003). We grew ourexports, without neglecting thelocal market which supported us.We oriented our exports towardsthe German and American markets,but now we plan to export alloverthe world”. A Turkish companywhich exports chemicals toGerman and American giants, whatis the secret? “Market intelligence isour priority. I rely on my exportdepartment, where eight youngpeople are working. I call them ‘mywarriors’! We have 25 people work-ing in our R&D department, forwhom I always buy new equip-ment.”What is the result? “Our lat-est ‘baby’ is coming:We will mixstabilizers and modifiers in onepackage. We expect a great successfor this new product that we are theonly one in the world to produce.”

In brief: Strong marketingupstream, strong R&D downstreamand a continuous level of quality.Add to that good managementfrom the supply chain to the sales(direct approach to final consumers,without sales intermediaries) andyou have the Akdeniz’s formula forsuccess.

But it’s still not enough for CemHeris. “Now we have establishedour company as a reference in thedomain of polymer additives, wewant to become a well establishedchemical company. For that, weneed a partner. But this has to be achemical company which shares ourviews on management.”

The case of Akdeniz reveals theability of Turkish companies to stayin the race alongside American,European and Asian players.

The market of soaps and deter-gents in Turkey provides anotherillustration of this. Everywhere in

November 24, 200446 A Global Business Reports Publication,presented with Chemical Week

the world, the chemical industry is designed to fuel domes-tic needs first, and one of the first markets is householdchemicals and the soaps and detergents sector. In Turkey, acountry of almost 70 million souls, domestic players havebeen successful in keeping at bay the global contenders whohave been so successful at grabbing dominant positions else-where in the world. Soap maker Evyap or detergent manu-facturer Baser are fighting hard to keep P&G, Henkel andColgate Palmolive at bay, and have managed to build cus-tomer recognition that is, for instance, providing Evyapwith the leading market share in the soap segment. Thecompany has also spread its activities beyond Turkey’s bor-ders, with plants in Egypt and Ukraine.A number of small-er sized detergent manufacturers are also rendering themarket very price-competitive, making life even more dif-ficult for the big global producers.Subsoil advantage

Turkish chemical companies also take advantage of whatthe Turkish subsoil can provide them with. Many compa-nies have developed their activity around the exploitationof sodium and chrome ore deposits, plentiful in south-cen-tral Turkey. The country has a large estimated reserves ofsodium-rich minerals such as trona. This mineral used toproduce soda ash, an indispensable component in the pro-duction of glass, had to be imported for many years beforethe current market leader, Soda Sanayii, sought out a localsource of production. Soda Sanayii A.S is one the four busi-ness groups of the glass producer Sisecam, a subsidiary ofTurkiye Is Bank, the 3rd biggest conglomerate in the coun-try. It is the only producer of soda ash and chromium chem-icals in Turkey. If half of the soda ash produced by this com-pany is consumed by Sisecam, the remaining 50% is export-ed, as well as 70% of the chromium chemicals. Soda Sanyiimerged its activity with Kromsan in 1986, giving birth to aworld leader in soda ash and chrome chemicals with aturnover of $175m. If Soda Sanayii is totally dominating thesoda ash production in Turkey, for sodium sulphates pro-duction also,Turkey is host to strong operators:The Turkishnational champion is called Alkim Alkali Kimya ($90mturnover) and is not only the main Sodium Sulphate pro-ducer and exporter ($40m) in Turkey, but also a veryrespectable actor in the world.The “salt cake” they produceis an important raw material for the industries of paper,detergents or glass. Mr. Kora, managing Director of AlkimAlkali Kimya, chose to invest in the paper business, whichhe considers “a strategic activity for (their) development”.The industrial synergy between the Sodium Sulphate andthe paper production is not obvious but Mr. Kora prefers to

talk about the interest of integrating its activity. “TheTurkish consumption of paper per capita is 26kg, that is tentimes less than the USA.This feeds our great expectation onthis market”. Meanwhile, another company, close by thename and turnover($85m), but very different in many ways,Akkim Kimya Sanayi, has a strategy based on diversificationand synergy in its production of chemicals. Diversificationfirst, in so far as their range of products goes from inorgan-ic chemical(including of course sodium suphate-basedchemicals) to organic chemicals and textile auxiliaries. Mr.Refik Onur, GM of Akkim, is planning to increase hisexports dramatically, counting on a steady growth fuelled bynew production in areas like Hydrogen Peroxide. Akkimalso creates Synergies, with its sister company, Aksa. Akkimand Aksa belong to the same group,Akkök being very closeto each other they share logistics facilities, water treatment,steam and electricity. Being vertical or horizontal, synergiesalways constitute a good competitive advantage. Turkey’ssubsoil also contains the largest deposits of Borax in theworld, with more than 60% of the proven reserves. GizemFrit has used this raw material to produce enamel and pig-ments since 1979. Exporting 65% of their production toEurope, especially Italy, they sell their products mainly tocooker producers and are growing at a pace of 20% peryear. Mr.Tolga Ballik , General Manager of Gizem, explainswhy the exports are the key of their strategy: “First of all,the production of white appliances in Turkey is not asdeveloped as in Europe.“We are very happy and successfulwith the European market because our comparative advan-tages are decisive. Our prices are really interesting, we don’tpay customs and we achieved the same level of quality asthat of the two giants of the sector, the American Ferro andthe British Pemco.” in fact, Ferro is Gizem’s main competi-tor in Turkey, since they created a joint venture with theTurkish company Ege Kimya. Interviewed about this toughcompetition, Mr Ballik answers mischievously;“of course itdefinitely makes sense to create a joint venture in Turkey,where the raw material is!” Is it a discrete appeal to Pemco?Mr Ballik doesn’t deny this, arguing that building alliancesis the surest way to win.



The Alkim Sodium Sulphate plant:Tapping the natural bounties.

Textile, a key driving force behind the industry.Aksa is the largest acrylic fibermaker under a single roof.


The inevitable, and crucial, textile industryThe textile sector is Turkey's largest manufacturing indus-

try and the largest export sector. It is also one of the biggestconsumers of chemicals. Many companies have been creat-ed to supply this industry and one of the most established inTurkey is Aksa. Created in 1971, Aksa is now the mainacrylic fiber producer in Turkey (with more than 80% of themarket share) and even owns the largest acrylic fiber pro-duction capacity in the world under one roof.Aksa sells onall the five continents, and is a “perfect example of a com-pany who managed to succeed both domestically and inter-nationally” according to Mr. Mustafa Yilmaz, GeneralManager of Aksa.

Another domain where some national companies are par-ticularly dynamic is water treatment chemicals. Many dis-tributors, like Abaci Kimya and Dibay, have focused theiractivity on the distribution of the chemicals, since the levelof consumption began to rise 10 years ago. Indeed, fromswimming pools to industrial plants, the use of these chem-icals is booming in Turkey. Mr.Tufan Abaci, owner of AbaciKimya, a distributor for major global companies such asAkzo Nobel and Dow Chemical, explains that the trend ofthe market is very good not only in Turkey, but also in theneighbouring countries.This represents a good opportunityfor developing a re-exportation activity.

Despite the intense activity of the distributors importingthese crucial products for the Turkish industry, domesticmanufacturers are also present and dynamic. Deren Kimya isa company created with domestic capital and technology and

is now the only Turkish company who can compete againstthe giants of the sector such as Henkel and Narco. Mr.Taskkin Ozturk, owner of the company, explains that he suc-cessfully chose a niche market strategy such as marine tech-nology and pharmaceuticals including water. Mr Ozturktakes advantage of the flexibility of his company:”One of ouradvantages is the ability to move much faster than the largercompanies.That’s because decisions on technical matters andfinancial matters are centralized through me and answerscome quickly.”When we ask him about his expansion proj-ects, his answer also came very quickly :“Production is alwaysexpanding. As is our distribution network. We serve 2,500companies and are known by all the companies in the indus-try. We believe we can cope with both producing for thedomestic market and for the export market.”

Turkish managers and entrepreneurs alike have spent yearshoning their crisis fire fighting skills as the economy haslurched from boom to bust over the past two decades.Thelast crisis of 2001 forced many to look beyond their bordersand towards the opportunities both nearby and further afield; double digit growth in exports since 2001 prove thatsuch a strategy has been well conceived. But as the localeconomy has rebounded (this time more steadily) theseindustrialists have not forgotten their local market and havenow returned their attention to redevelop their base mar-ket.With everybody from the man on the street to the IMFin Washington predicting an end to past economic woes thelocal chemical sector can now concentrate on strategicgrowth and development.


November 24, 200448 A Global Business Reports Publication,presented with Chemical Week

Facing increasing global com-petition, the Turkish chemi-cal industry holds two good

playing cards in its hand:The geo-graphical position of the countryand the flexibility of its compa-nies. However, these cards becomereal trumps only if the sector canrely on a dense and efficient logis-tics network.The competitivenessand the development of thechemical industry in Turkeydepends on a good and safe syn-chronization between all the linksin the supply chain, and not onlyfor exporting companies.

Nestled between three major geopolitical blocks,Europe, Russia and the CIS and the Middle East, Turkeynaturally plays a role of hub in the sub-region. For mostof Turkish chemical companies, Europe is the mainprovider for raw materials, while Eastern Europe, Russia,Ukraine and the Middle East are typically important

export markets.Approximately 50% of Turkey’s

chemical industry is concentratedin the Istanbul-Koaceli region.The province of Kocaeli, 60kmsouth east Istanbul, has becomethe most rapidly growing indus-trial region in Turkey. If Turkey isa bridge between continents,Kocaeli is a real bridging pointwithin the country. Moreover,thanks to continuous industrialinvestments (between 1965 and1970 Kocaeli was the most rapid-ly growing industrial region in

Turkey and even in the world - with a growth rate of577% ), the region is now home to 35% of the chemicalindustry, 10% of automotive and 20% of the basic metalindustries, both big users of chemicals. Many reasons canbe given to explain why Koaceli became the ‘place to be’for the chemical industry. The first one is obviously theproximity with the biggest zone of consumption of the



Logistics:

En route to the world:Turkish chemical needs a solid logisticsbackbone.

yes we can



November 24, 200450

country, and even of the entire sub region: Istanbul.A sec-ond reason is the establishment of special trade zones likeGebze Organized Industrial Zone (GOSB) or the KocaeliFree Zone (KOSBAS). However, it is the sophisticatedcommunication and infrastructure network that trulyunderlies Koacelis’s success as an investment destination.Toa lesser extent, and for quite similar reason, most of the restof the chemical industry is located around Izmir andAnkara.

The Izmir region in particular is far from irrelevant withthe presence of the giant of Turkish petrochemicals, Petkim,located there, attracting a cluster of companies includingYasar/Dyo for paints, AGS for paraffin wax and Akdeniz(polymer additives).

In order to be able to sustain their growth, the chemicalcompanies of the Koaceli region, need to have raw materialsconstantly at their disposal. Thus, the last thirty years, havewitnessed a significant increase in the number of privateports and warehouses in this zone.

The story of Poliport underscores this trend and also thecapacity of Turkish entrepreneurs to think forward and to

develop their businesses constantly, even if this meanschanging their core activity. Poliport was founded thirtyyears ago, in order to support Polisan`s (the mother com-pany and one of the five most important paint producersin Turkey) existing activities. Mr. Necmettin Bitlis, is acharismatic individual who at the age of 76, is still veryactive and involved in future plans of the business.Though he would rather lay responsibility for his successin anticipating trends like a fortune teller, it is evidentthat he had a clear business vision when building up oneof Turkey’s largest private ports and positioning Poliportand Polisan in a very strategic position. Moreover, takinga strong stance on environmental responsibility, Mr. Bitlisdistinguishes himself as a role model for future captainsof industry.“Fortune played its role in helping me realizethe importance of logistics,” he says, “but I was alwaysaware of the potential the sea gives in terms of logisticaladvantage.” Indeed, after years of constant investmentsinto expanding and modernizing his plants, Poliport nowserves a large spectrum of clientele in the areas of BulkLiquid Storage, Warehousing and Stevedoring Servicesfor dry bulk and general cargo vessels. Mr FiratYemeniciler, General Manager of Poliport, has no inten-tion to take a break in the expansion of the port.“We aimto be a $500 million company (against $130 million in2004) through new alliances and new acquisitions. Iundertake that if we can combine our forces with tech-nically advanced, financially strong businesses we canmore than double our size.”

But ambition is not the prerogative of only Poliport.One of its main competitors is Solventas, whose terminalis a bonded warehouse for bulk and dry chemicals spreadon 25 acres at the Izmit Bay shore of the Marmara Sea,about 20km from Poliport’s terminal. As with Poliport,Solventas takes advantage of a very good location, close toKocaeli.Their portfolio of suppliers is a real “who’s who”of the chemical industry, including most of the biggestchemical companies in the world (BASF, Clariant, Dow,DuPont, etc.)

Constant innovation is the Solventas leitmotiv:“We havebuilt new bunkering facilities for the vessels and this hasbecome very profitable” says Alber Baruh, founder ofSolventas. “We also have a type of blender that you can’tfind in any other terminal in the world, except in

Singapore” he added, proudly. But innovation can be foundelsewhere than in the terminal’s facilities. “One of the mainstrengths of Solventas is our new IT system which providesus with total control on everything happening at the termi-nal.The customers are informed by Internet,which improvescustomer relationships and reliability. For us, it’s also a goodmedium for optimizing the security and the profitability ofthe terminal, knowing in real time the tanks’ inventory andactivities.” He adds that this tailor-made software solutionwould be attractive to any other terminal operator in theworld. “Moreover, we are the owner of the lands surround-ing the terminal, so we don’t have to beg anyone when itcomes to expanding our storage capacity….”

Of course, Solventas and Poliport are not the only compa-nies to have tried and managed to make the most of theexceptional location of Gebze.Alemdar Kimya, the first andonly oleochemical plant in Turkey, followed the same strate-gy as Polisan. Being a leader in the oleo chemical industryand exporting to the Middle East, the Far East, Europe andUnited States, they decided to build the “Alemdar PortFacilities” which consist of 4 berths, 6 pipe-lines, and 3 tank

Turkey, a logistical heaven?




terminals.The trend of expanding the core busi-ness to logistics management is strong and endur-ing in this zone.Evyap,one of the biggest soap andcosmetics producers and exporting 75% of its pro-duction, took the same decision, founding last yearEvyap Logistics and Evyapport, the port of Evyap.

This strategy consisting in integrating logisticssuch as port facilities, is based on the idea thatwho controls the stocks controls the market andabove all, is less exposed to the risks of shortages.

Indeed, Turkey is strongly dependant on theimports of raw materials, particularly fromGermany, Italy and Switzerland. Any fluctuationin the supply chain can have immediate and cost-ly impacts on the activity of the chemical compa-nies.

As previously stated, the majority of the chem-ical companies in Turkey are rather small com-pared to their competitors in Europe. Most ofthese smaller companies that we met with whenresearching this report assured us that their smallsize, combined with a sharp and reactive organi-zation, is a strong advantage in terms of flexibili-ty. Mr. Cem Heris, General Manager of Akdenizin Izmir explains that “if an order from Egyptcomes today, his products can be in his warehouseless than 5 days later.”

To perform a feat like that, two conditionshave to be in place: The Company should beable to accept and deal with any kind of order,

Poliport: One of the major private gateways to Turkey.


whatever the amount, and it has to depend on a goodtransportation system.

In Turkey, almost all customers in need of overland trans-portation, use trucks as Turkey lacks a sufficiently devel-oped railway network to enable a good transportation ofcommodity chemicals. In addition, last July, two deadlytrain crashes in the northwest of the country killed 37 peo-ple and injured 81. These terrible accidents remindedeverybody that the railway network is not only underde-veloped but is also potentially dangerous.This situation hasmade Turkey one of the countries with the largest truckfleet in Europe. Alisan group, an international transportcompany based in Gebze, owns a fleet of almost 200trucks, including 19 liquid chemical carriers and transportsits customer’s products throughout Turkey and all overEurope. 60% of their activity comes from carrying chemi-cal products. Mrs. Damla Alisan, one of the founder’sdaughters and GM of the company, sums up: “Chemicalcompanies have no other choice than using trucks.We arethere to create added value and to transport their productswith all the safety required. Despite the competition, theprices of these services are still quite high” Fuel costs arecurrently double those in the States.What’s more, the con-ditions of the roads, especially in the countryside, have tobe dramatically improved.

However, despite these difficulties, the logistics market iswell organized by local players, who have learnt year afteryear, to adapt to the specific conditions existing in Turkey.The arrival of big foreign competitors into this temptingmarket (like the German Brenntag,who is expected to makea significant move on the Turkish market early 2005) will bea new challenge for these well implanted companies.


52 November 24, 2004

Paint: bright delight

I f one segment of the chemical industry in Turkey wereto be singled out for a promising future, it would haveto be the paint industry. Two elements under pin the

growth of a sub-sector that today accounts for 4.3% of theTurkish chemical industry’s overall sales.

The first element is the rise of a large Turkish middle-class, fueling consumer spending and boosting paint con-sumption.The shift towards decorative paint from an indus-trial coatings-dominated paint industry is pronounced andmost manufacturers are now concentrating on this segment.Levels of competition have soared, especially due to thepresence at the heart of the Turkish market of a cottagepaint industry selling low quality, low priced products.Product differentiation is therefore a relatively easy exercise,but educating consumers to increase their spending habitsfor paint items after years of belt tightening due to eco-nomic crisis has been a costly marketing exercise for alllocal Turkish paint makers.

Turkey’s per capita paint consumption is still very low, at4-5 kg per year versus levels of 18-20 kg/yr in developedcountries.Yet with growth rates for paint consumption at10% annually since 1988 and an estimated 12% annualgrowth over the last few years the sector has become an


Documents

Turkey · refined petroleum products,Tüpras is also a producer of petrochemical products.Petkim is the major petrochemical producer of Turkey,feeding 30 % of the Turkish demand