ISTANBUL -- Turkey's underdeveloped inland areas are getting some new residents: Japanese manufacturers.
Sumitomo Rubber and Turkey's AKO are preparing to start this joint plant in north-central Turkey's Cankiri Province.
These companies are being attracted by ample low-cost labor and tax incentives dangled by the government. Some Japanese manufacturers have already teamed up with Turkish partners to build plants in inland provinces.
Sumitomo Rubber Industries and Turkish tire producer Abdulkadir Ozcan Otomotiv Lastik, also known as AKO, have set up a joint venture in Cankiri Province in the north-central part of the country. Output is to start this summer.
Bridgestone, meanwhile, intends to make tires in central Turkey with partner Sabanci Group, beginning in 2018. And in the east of the country, another Japanese company is behind a steel plant project.
Ankara's efforts to woo foreign businesses to the nation's center are starting to bear fruit.
Almost ready to roll
The tire factory Sumitomo Rubber and AKO are building on a Cankiri plain will be the first Japanese-backed plant in central Turkey. The Japanese company owns 80% of the $500 million joint venture, dubbed Sumitomo Rubber AKO Lastik Sanayi ve Ticaret, or SAT. Ankara-based AKO holds the remaining stake.
Construction started in October 2013 in what will become an industrial park. Trial production is slated to begin in April. When the facility comes fully onstream in July, it will have initial daily output of 200 to 400 tires. The rate is to be increased to 4,000 in December.
By the end of 2019, the goal is to have a workforce of 2,000 and daily production of 30,000 tires.
Sumitomo Rubber intends to make the Turkish plant a hub for exports to European and Middle Eastern markets. Of the facility's output, 40% will go to the European Union and another 40% to Russia. The rest will be split between supplies for automakers operating in Turkey and sales to Turkish consumers.
Government tax breaks were the biggest factor in Sumitomo Rubber's decision to start production in Cankiri, according to SAT President Norifumi Fujimoto. The incentives include a 10-year exemption from mandatory employer contributions to social security, a reduction in the corporate tax rate from 20% to 2% on a certain amount of income, an exemption from a 6% tariff and measures to ease the burden of the sales tax.
Investments in Cankiri Province are eligible for the second-highest of six levels of government incentives. Locating a plant in an industrial park qualifies a company for the highest level.
The 1 million sq. meters of land needed for the SAT plant was supplied by the government for free.
But government perks are only part of the attraction. Labor costs in the region are substantially lower than in urban areas. The initial monthly take-home pay for workers at the new plant is 1,200 Turkish lira ($458), 20% to 30% less than the comparable figure for Istanbul.
The area's lack of other large factories and businesses means it is relatively easy to hire workers.
Extra capacity
Bridgestone has found a similar plum position with its joint venture in an industrial park in Aksaray Province. The Japanese company and its Turkish partner, Sabanci, each own about 44% of Brisa Bridgestone Sabanci Lastik Sanayi ve Ticaret, or simply Brisa.
The about $300 million venture is expected to be turning out 13,000 tires per day by 2022.
Sabanci is Turkey's second-largest conglomerate, with businesses ranging from banking and brokerage services to power generation and cement production.
Brisa already runs a plant in Kocaeli Province, east of Istanbul, but wants to ramp up production capacity. The new facility in Aksaray will be the company's second.
Investments in Aksaray are also eligible for the second-highest level of government incentives. As in Cankiri, moving into an industrial park gets you the highest level.
Over in southeastern Turkey, Tosyali Holding, a Turkish steelmaker, has tied up with Toyo Kohan, part of Japan's Toyo Seikan Group, to build an about $400 million plant in Osmaniye Province. The facility is to manufacture surface-treated specialized steel. It is expected to come onstream as early as 2016.
Istanbul-centric
The Turkish government expanded its incentive program in 2012 because it wants to spread out economic activity beyond Istanbul. The government also hopes to nurture competitive domestic industries, in order to boost exports and reduce a chronic current-account deficit.
Seen from another angle, the policy appears aimed at stoking the economies of rural provinces that are the traditional constituencies of the ruling Justice and Development Party. Incentive levels depend on the region, with preference given to central and eastern areas.
Istanbul is home to nearly 20% of the country's population of around 78 million. The metropolis and surrounding areas are responsible for a third of the nation's gross domestic product. The nearby provinces of Kocaeli and Sakarya host the plants of automakers and parts suppliers from Japan, the U.S. and Europe.
Side effects of this concentration include chronic traffic jams and soaring real estate prices.
Photo caption:
Sumitomo Rubber and Turkey's AKO are preparing to start this joint plant in north-central Turkey's Cankiri Province.
