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Upstream Focus: Hadi Karasu on Turkey’s Priorities, Proximity and Vertical Value Proposition

Upstream Focus is Sourcing Journal’s series of conversations with suppliers, associations and sourcing professionals to get their insights on the state of sourcing, innovations in manufacturing and how to improve operations. In this Q&A, Hadi Karasu, president of the Turkish Clothing Manufacturers’ Association (TGSD), discusses the benefits of nearshoring, Turkey’s vertical value proposition and why Covid has changed how manufacturers are evaluating retail partners. 

Hadi Karasu
Hadi Karasu, president of the Turkish Clothing Manufacturers’ Association Courtesy

Name: Hadi Karasu

Title: president

Organization: Turkish Clothing Manufacturers’ Association (TGSD)

What’s the number one question or concern you hear from your members now that was never really a consideration before?

Fashion is one of the industries that have been impacted by Covid the most. We have answered so many questions addressed to TGSD’s help desk since March. The No. 1 concern relates to the uncertainty of future orders given by customers in the long-term.

At the beginning of the pandemic, orders were suspended in the middle of the production line. Future orders were dropped in volume or postponed indeterminately, the liabilities arising from production were not covered, and the terms of payment were becoming more demanding.

Some of these brands are canceling their contracts with their smaller suppliers to fill the capacity of the bigger ones in order to get [a better] discount or to keep making good margin.

These are some of the problems that remain unsolved for many manufacturers.

How should factories be evaluating potential brand and retail partners differently now compared to before the pandemic?

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To increase their readiness for uncertainty, manufacturing companies are carefully watching how their customers have been reacting to the pandemic since March. They learned the importance to manage and evaluate the existing and potential risks along their entire supply chain. Some manufacturing companies started to check the financial credibility of their customers.

Fast-fashion and mass buying trends were on the rise before the pandemic. Increasingly so, factories prefer to partner up with brands that are more compact, agile, able to move fast and more invested in online sales. Those brands are more modern in their approach, and by prioritizing respect and mutual understanding, they are more capable of relating to the purchasing habits and attitudes of Generation Z.

Going forward, brands and retailers will need manufacturers with micro-level vertically integrated setups close to their market for a quicker turnaround in production, warehousing and distribution to support increasing online sales. Some brands already saw the value in this.

How can the relationship between these parties evolve?

First of all, by realizing that the pandemic is not over yet. Retailers and vendors need to stay in solidarity until they both see the light at the end of the tunnel to make it out alive and get stronger. They should save their suppliers by distributing orders proportionately across all their vendors, instead of keeping the bigger ones full and leaving the smaller to die. We can get through these difficult days in full solidarity.

Secondly, giving each other some flexibility without escaping contractual obligations. There is a global need for a new definition in contracts that assign liabilities evenly to both parties. This includes the responsibilities of buyers concerning PO placements as well.

Thirdly, by keeping communication channels open. All stakeholders should be able to get in touch with their partners easily. Especially when working from home or reduced hours, parties should make extra effort to be visible and accessible at all times.

This approach will bolster mutual understanding and respect, enabling more transparency and strength of the relationship.

What should be manufacturers’ top lesson from the pandemic? How can they address this in their operations?

The pandemic taught brands and retailers alike that price cannot be the only concern. They both have to diversify their sourcing and buying bases.

Manufacturers learned the importance of not carrying all eggs in the same basket, which means distributing their supply chain risks from bottom to top. They also know the value of making agreements with buyers to protect their rights and securing their payments. They started to employ stricter methods other than credit insurance such as refraining from working as an open account.

They also recognized the need to improve their stock management, flexible working performance, and efficiency. They have been aware of how important digitalization is, but they now know that using digital tools is a pressing need.

Lastly, they began to develop more sustainable ways for both management structure and production methods. Clean and environmentally friendly, more digitalized, remotely controlled small vertical setups and multi-skilled people in production with lean organizations have been the key concepts that we have been repeating during this pandemic period.

What is the state of apparel production capacity in Turkey? From your perspective, what is the outlook for 2021?

The export value might excel at $18 billion, with a better outlook than 2019. The apparel production is slowly picking up, but it still has so much unfulfilled potential. Turkey’s capacities are scalable and can be increased within a short period without a need for additional investment.

The clothing industry is still growing with larger vertical integration towards Eastern Anatolia, where there is a massive young and vibrant workforce that offers better costs compared to micro-level vertical investments in Western Anatolia.

Turkey will continue to stay as the best option for retailers in and around the country and the strongest potential partner for the world’s fashion brands and retailers in its supply chain. Turkey and China are the two counties with fully vertically integrated supply chains in the fashion industry, so the Turkish textile and clothing industry will inevitably grow up much faster in the coming 10 years.

How can the Turkish government best support the domestic garment industry during this time?

The Turkish government launched a stimulus package with compensation schemes where it offers a partial wage support system, for example, short-term work allowance. Amendments are necessary to improve wage support to ease manufacturers’ obligations. Manufacturers also need more support in loan repayment.

If companies aren’t already producing in Turkey, why should they consider using it as a sourcing location?

Brands should consider their sales region and the actual cost of finished products while factoring in location and time.

Turkey is well-suited for regional and local-for-local production that Europe needs to deliver for its growing online sales. Turkish manufacturers offer short lead times with fast delivery, consistency in high-quality and efficiency, all the while possessing a great level of know-how, background in textile, design, product development and R&D, warehousing, logistics, advance retail platforms and network, highly skilled and well-qualified employees, and out-of-the-box and fast-thinking skills.

Nearshore manufacturing has become more valuable, and Turkey offers a one-stop production place with a wide range of products with great flexibility.

What’s in store for TGSD in 2021?

We will be supporting the ready-made garment industry with its adaptation to the “new normal” by facilitating further collaborations, efforts in sustainability, technology and innovation.

We have prepared a Green Fashion Industry Cluster project to support the Zero Waste project of the Turkish government and presented this to the official authorities in early 2020. We want to continue our support in this and see new investments taking place in the newly organized industrial zones in the eastern part of Anatolia.

We have initiated the TGSD Development Academy and already had some meetings together with the opinion leaders and entrepreneurs who have been influential in bringing our sector to these days under the supervision and mentoring of one of the best universities in Turkey. We are also working on some training programs.

We founded Young TGSD as a fresh missionary force from the second generation of our members. They have mentors and are collectively working on several projects concerning circularity, sustainability, digitalization, standardization, etc. We let them take roles in Euratex working groups for them to contribute to the Turkish and global industry by being closer to the EU agenda in the fashion industry. We will be in close contact and collaboration with our international counterparts from NGOs as well as our government for better lobbying as the mission of TGSD.

Additionally, we are analyzing the pandemic period, before and after, to better understand and explain the potential change in the world economy and fashion industry.

In short, we are preparing ourselves and our members to remain the main industry players in the future.