Clusters and Competitive Advantage The Turkish Experience_3 pptx

56 Clusters and Competitive Advantage
advantage created. The main steps in the methodology employed are sum-
marized in Figure 3.4.
18
The qualitative analysis of the case studies is based on a review of the litera-
ture, secondary data analysis and in-depth interviews with cluster participants.
The review of the literature provided information on the clusters’ historical
development and their main local players, as well as recent changes and
challenges faced by the cluster members. Academic journals, government
publications, trade magazines, trade associations and local newspapers were
amongst the major sources. Secondary data on given clusters provided such
information as a cluster’s size and growth over the years, its employment
specialization, the distribution of each firm in the cluster by number of
employees, the type and distribution of occupations in the cluster, and the
cluster’s export and productivity performance.
A total of 72 in-depth interviews and numerous shorter ones were
conducted. The interviewees were managers of firms, government officials
and other industry experts from organizations linked to the cluster (such as
universities, sectoral associations, research centres and institutes). The inter-
views were semistructured and took 1.5–2 hours, although some took as
long as 4–5 hours. The respondents were asked for their overall evaluation
of the cluster, the reasons for geographic concentration and the possible
Analyse
industrial
statistics
Analyse
trade
statistics
Identify
internationally
competitive

industries
Seek a statistical link between
geographic concentration and
competitiveness
Select and conduct
cluster case studies
Clarify the link between
geographic concentration and
competitiveness
Identify
geographically
concentrated
industries
Figure 3.4 Methodological process followed in the study
Industrial Clusters in Turkey 57
contribution of attributes of the location to the international competitiveness
of the cluster. The interviews were then transcribed and the main themes
were identified. This information served as the basis for the reports prepared
on each of the cases studied. The information derived from the interviews,
the literature review and the secondary data were used to construct a cluster
map for each cluster.
19
Geographic clusters and competitiveness: which cases to study?
To understand the complex role that the attributes of the local environment
play in shaping the competitive advantages of firms, a detailed analysis of
specific clusters is needed. Only a full analysis of the historical development
and current structure of a cluster can reveal the true nature of the relationship
between geographic clustering and competitiveness. This challenging task
will be the subject of the next four chapters. The clusters chosen were the
furniture cluster in Ankara, the towel and bathrobe cluster in Denizli, the

machine-made carpet cluster in Gaziantep and the leather clothing cluster
in Istanbul.
The furniture cluster in Ankara served as a pilot study, since my residential
proximity to this cluster made it much easier to go back and forth and
reinterview many of the participants, and to revise the method of investigation
accordingly. Although the cluster is one of the leading areas of economic
activity in Ankara and is highly concentrated geographically, its degree of
international competitiveness has remained low. This is interesting in that
furniture making is a traditional, labour-intensive industry and in this respect
it resembles many of the competitive clusters. Given that there is an over-
emphasis on competitive clusters in the literature and the relatively less
competitive ones are understudied, the furniture industry in Ankara makes
an ideal case for detailed study.
The second case study was of the towel and bathrobe cluster in the
Aegean city of Denizli. This choice was well justified given that this cluster
was arguably the one that brought the concept of geographic clusters to the
attention of academics and policy makers in Turkey. Its success in the world
market has attracted considerable attention. A comprehensive analysis of
that success and its resilience in the face of recent challenges at home and
abroad can substantially improve our understanding of the relationship
between clustering and competitive advantage. The process Denizli has
gone through is also different from that in other provinces with significant
textile industries, such as Tekirdag which owes most of its development
impetus to its geographical proximity to Istanbul and Western Europe.
Moreover the public sector does not have much of a presence in Denizli,
which has forced it to rely on its own capabilities. Finally, the textile-town
of Denizli provides us with a natural and unique laboratory to investige the
58 Clusters and Competitive Advantage
geographic concentration of specific industries given that the impact of
localization economies is very clear in this city in the absence of urbaniza-

tion economies.
The south-eastern city of Gaziantep’s success in several areas, including
machine tools, carpets, yarn and pasta, has also attracted considerable atten-
tion. Of these the carpet cluster, with its high geographic concentration and
rapidly improving export performance, deserves detailed analysis for two
reasons. First a case study of this cluster will serve to reinforce the findings
obtained from the study of the equally successful towel and bathrobe cluster in
Denizli. Second, Gaziantep is not among the major historical carpet-weaving
centres in Turkey. This adds another dimension to the study in the form of
an exploration of why and how the carpet cluster came to develop in this
city rather than somewhere else (for instance in one of the traditional carpet-
weaving centres in Anatolia). An additional reason for studying this cluster
is that it is located in south-eastern Turkey, an area otherwise associated
with poor economic development. Thus in addition to contributing to our
understanding of locational factors in competitiveness, this cluster study
is likely to provide valuable insights into regional economic development
more generally.
Finally, the leather clothing cluster in Istanbul provides an opportunity to
investigate a very interesting set of relations. First, the nature of its link to
international markets is different from that of many other clusters, given
the important role assumed by the so-called ‘luggage trade’ in this cluster.
Second, in response to recent changes in the business environment there
has been a shift in the strategic orientation of Istanbul’s leather producers,
which provides interesting insights into the changing patterns of competitive
advantage in clusters. Third, within Istanbul there are two separate concen-
trations of activity that are related to the cluster: production units and
networks are concentrated in Tuzla on the Anatolian shore, and the sales
and marketing functions are concentrated in the Laleli/Zeytinburnu districts
in the historical, European section of the city. Such an interesting network
of relations merits special consideration. The analysis of this cluster in

Chapter 7 also contains a discussion of the Istanbul economy in more general
terms, providing the reader with knowledge of the range of activities that
prevail in the economic capital of Turkey.
In addition to the detailed studies outlined above, this book briefly
discusses other clusters that exist in the cities examined, including the
construction cluster in Ankara, the footwear, cutlery and marble clusters
in Denizli, the machinery cluster in Gaziantep, and the footwear, motion
picture and jewellery clusters in Istanbul.
All the case studies presented in the following chapters have the same
structure. Each chapter starts with an overview of the cluster, outlining its
general characteristics and importance. Next the origins of the cluster and
Industrial Clusters in Turkey 59
the key events in its history are presented. This is followed by an investigation
of the cluster’s sources of competitive advantage/disadvantage, and then the
specific reasons for its geographic concentration in the area in question are
identified. The concluding section discusses the future prospects of the cluster,
given the preceding analysis.
60
4
The Furniture Cluster in Ankara
In many industrialized countries the furniture sector accounts for about
2–4 per cent of the production value of the manufacturing sector. The EU
furniture industry is particularly strong, accounting for about half of the
world’s production. Table 4.1 shows the market shares of the top ten exporters
of furniture (SITC 821) in 1991–2000. As can be seen, Italy had the highest
share with an impressive 17 per cent. Moreover Italy maintained its leading
position throughout the period, while the export share of the runner-up,
Germany, dropped from 15 per cent to around 9 per cent. The latter figure
matched the US share, which remained fairly stable. The share of Canada,
on the other hand, increased considerably in the second half of the 1990s

and reached a significant 9 per cent. The shares of the two other important
furniture producers, France and Denmark, fell slightly, each stabilizing at
about 4 per cent. Belgium and Luxemburg also suffered a gradual decline
from 4.5 per cent to 3 per cent. A similar market share (3 per cent) was
captured by the United Kingdom, whose stake remained relatively stable.
Meanwhile China and Poland emerged as new players and gradually increased
their shares to 8 per cent and 4 per cent respectively.
The export performance of the Turkish furniture industry, on the other
hand, has not been particularly impressive. Despite an increasing trend
in recent years, exports remain insignificant and the industry is mainly
domestically oriented. The value of exports rose from about US$20 million
in 1990 to $180 million in 2000. Over the same period imports increased
from $25 million to $190 million.
Turkey’s share of the world furniture market has remained at 0.2–0.3 per cent
in recent years, which is below the calculated cut-off rate of 0.52 per cent for
the Turkish manufacturing industry as a whole (Chapter 3), suggesting that
the industry is not competitive in respect of SITC 821; that is, the general
category ‘furniture’. Turkey does, however, hold competitive positions in
some of the subsections of the industry. Of these, the export performance
of manufacturers of seats and convertible beds (SITC 82115), motor vehicle
seats (SITC 82112) and mattresses of other materials (SITC 82125) was relatively
The Furniture Cluster in Ankara 61
strong in 2000, with world export shares of 4.2 per cent, 3.8 per cent and
2 per cent respectively (ITC, 2002). The major export destinations are Germany,
Israel, the Netherlands, France, Russia and the CIS countries, especially
Azerbaijan, Kazakhstan and Turkmenistan. In recent years exports to the
Balkans in general and Greece in particular have also increased. Italy, Germany,
France, the United States, the United Kingdom and Spain, on the other hand,
are the leading exporters of furniture to Turkey. Within Turkey, the export
performance of furniture manufacturers in Ankara is particularly weak,

especially when compared with those in Istanbul and Bursa-Inegöl.
1
The geographic concentration of furniture manufacturers in some EU
countries is striking. German enterprises, for example, are concentrated
in three regions: North Rhine-Westphalia, Bavaria and Baden-Württemberg.
Several districts in northern Italy are home to more than two thirds of the
total number of furniture manufacturers and related employment in the
country, with about 55 per cent being concentrated in the regions of
Lombardy, Veneto and Tuscany. In France the concentrations are in the
Ouest/Vendee/Bretagne, Ile-de-France, Rhone-Alpes and Normandy regions.
Almost all Belgian furniture manufacturers are located in the western part of
the Flemish region (Engels, 1999). Other well-known examples are Jutland
in Denmark and Smaland in Sweden, and, outside the EU, Sasaki in Japan
(Erzurumluoglu, 1991).
As in the countries mentioned above, furniture manufacturing in Turkey
is highly localized, with Ankara, Istanbul, Izmir, Bursa and Kayseri being the
leading centres (Table 4.2). Although the manufacturers in Istanbul have
recently replaced those in Ankara in terms of share of total employment
in the industry, the LQ for Ankara is much higher than that for Istanbul
Table 4.1 Market shares of the leading furniture exporting countries (per cent)
Sources: ITC (2002); UN (1999).
Country 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Italy 17.7 17.0 16.6 16.7 17.6 17.8 16.7 18.1 16.6 15.3
Germany 15.4 13.9 11.7 10.8 10.5 9.7 8.6 10.0 10.0 8.7
USA 7.9 8.5 9.5 9.2 8.0 8.0 9.1 9.2 8.5 8.7
Canada 3.7 4.0 4.8 5.4 5.5 6.1 7.0 8.9 9.0 9.5
France 5.6 5.5 4.7 4.5 4.4 4.3 4.2 5.0 4.8 4.4
Denmark 4.9 4.9 4.6 4.4 4.6 4.0 3.9 4.2 3.8 3.5
China 1.5 2.4 3.1 3.7 3.7 3.7 4.7 5.9 6.8 8.4
Belgium/

Luxemburg
4.5 4.5 4.0 3.7 3.6 3.4 3.0 3.4 3.6 3.1
United
Kingdom
3.3 3.3 2.6 2.7 2.8 3.0 3.1 3.3 3.1 2.7
Poland 1.1 1.2 1.7 2.2 2.8 3.2 3.3 4.0 3.8 4.0
62 Clusters and Competitive Advantage
(2.57 and 0.85 respectively), indicating that in relative terms the industry is
much more localized in Ankara. Indeed the firms in Ankara are concen-
trated in one district (Siteler) on the outskirts of the capital.
Origins and historical developments
Ankara was once a significant centre of mohair production, and this was the
core economic activity in the city until the late nineteenth century and the
coming of the railway. This enhanced the strategic location of the city and
attracted additional economic activities. The main goods exported from Ankara
at the time were grain, mohair, grapes, honey, leather, carpets/rugs and
agricultural tools. Interestingly, although there was little in the way of forestry
in the environs of Ankara, it appears that wood working was relatively
developed in the region (Önsoy, 1994). For example wooden looms for the
weaving of mohair were produced locally in the sixteenth and seventeenth
centuries, pointing to the existence of wood-related business activities
(Tuncer, 2001).
In fact the craft of furniture making has been practised in central Anatolia
for centuries. Impressive exhibits of eighth century BC royal wooden furniture
Table 4.2 Provincial shares of employment in the Turkish furniture industry
(ISIC 3610)
1
Notes:
1. Top ten provinces in terms of share of national employment and LQ greater than one.
2. Concentration ratios for the first four and eight provinces, respectively.

Province Share of national employment in the sector (%) Location quotient
Ankara 24.17 2.5698
Istanbul 20.75 0.8475
Izmir 8.57 1.1798
Bursa 6.88 1.7617
Kayseri 3.82 2.8844
Adana 3.06 0.9712
Hatay 2.46 1.4040
Eski
sehir 2.32 1.8171
Samsun 2.27 1.3281
Içel 2.09 0.8367
Sakarya 1.10 1.0796
Trabzon 1.03 1.0026
Isparta 0.52 1.0332
Burdur 0.31 1.0100
Van 0.10 1.8051
C4EMP 60.36
2
C8EMP 72.02
2
The Furniture Cluster in Ankara 63
from Gordion, the ancient Phrygian capital, located near Ankara, are displayed
in the Museum of Anatolian Civilizations in Ankara (Simpson et al., 1992).
Much of the area’s historical magnificence was, however, lost over time, as
evidenced by the way in which Major Robert Imbrie, a special representative
of the United States, described the Ankara of the early 1920s: ‘The shops are
tiny affairs with the most primitive of stocks. There is no bazaar worthy
of the name. It is impossible to buy a chair, a table or a bed, or the simplest
household article.’ According to him, it seemed that ‘the swing of the

pendulum through the arch of centuries had brought little change to Angora’
(Cross and Leiser, 2000, pp. 143–4).
Despite historians’ bleak picture of the general economic situation in
Ankara at that time, the city took on strategic importance – both politically
and economically – when the newly established Turkish Republic declared
Ankara its capital in 1923, a decision that hardly received a warm welcome.
Illustrative of this and the underdevelopment of Ankara is the fact that most
diplomatic missions were reluctant to move from Istanbul to Ankara. For
instance it took the American ambassador more than 10 years to move his
residence permanently from Istanbul to Ankara (ibid.)
The plan of the new Turkish government was to preserve the heart of old
Ankara and build a completely new city round it. The transformation of
Ankara from a small, underdeveloped, Oriental town to a large Western-
styled city and the consequent flurry of construction activity inevitably
influenced the structure of local industry and marked the emergence of two
related sectors: construction and furniture.
2
Towards the end of the 1920s,
factories and workshops began to spring up around Akköprü, specializing
in ceramics, timber and furniture.
3
A notable development in the 1950s was the relocation of small producers
and tradesmen outside the city centre. This started with the construction of
small industrial estates around Ankara, including Yeni Sanayi, Büyük
Sanayi, Ata Sanayi, Demir Sanayi and Keresteciler Sitesi. Although a number
of industrial zones housed furniture firms and enterprises in related areas,
one in particular, Siteler, is important for our purposes due to its currently
high concentration of furniture manufacturers.
4
Written and oral evidence

suggests that Siteler was established in the late 1950s by timber merchants
who, after a large fire, were encouraged to move from their central location
in Akköprü and Sogukkuyu to a more peripheral one, mainly because of the
risk of fire but also due to the noise and pollution associated with their
activities. The head of the municipality in Ankara, Atif Benderlioglu, with
the support of Prime Minister Menderes, was highly instrumental in organ-
izating this move. About 60 acres of land were allocated to the purpose, and
the seeds of the subsequent furniture cluster were sown in Siteler by the
arrival of the timber merchants. In the following years more timber merchants
set up business in the district, and towards the end of the 1960s furniture
makers formed a subdistrict of their own. Later the construction of residential
64 Clusters and Competitive Advantage
buildings began, and production activities gradually diffused into the new
residential areas, blurring the boundaries of the district. Finally, the entry of
larger firms triggered a transformation in Siteler in that the emphasis on the
local market shifted towards regional, national and even international
markets, though to a lesser extent (Tekeli, 1994).
Very few final customers visited Siteler in the early years of its develop-
ment. Rather they bought their furniture from retailers in the city centre,
where the prices included a considerable mark-up. Seeing the business
potential in this, many furniture makers in Siteler set up showrooms often
on the ground floor of their premises. Thus Siteler was no longer just
a production centre but also a specialized shopping centre. This proved very
profitable for the furniture makers, especially given the fact that their rents
were much lower than those in the centre. Moreover ‘the former workshop
owner now acquired the status of a businessman who had an office in the
showroom’ (Hazar, 1983, p. 17).
The success achieved by Siteler during these years resulted in nationwide
recognition of ‘made in Ankara’ furniture and a cosy life for the furniture
makers. However they failed to channel their earnings into investments,

and when similiar furniture districts began to emerge in other parts of the
country, coupled with the liberalization of imports, they found it difficult
to sustain their dominant position since they had little export experience
and few contacts in international markets to turn to in order to fight the
competition. As a consequence the good reputation Siteler had built up
over the years began to erode. A prominent manager interviewed in the
course of this study, whose company was amongst the first to move to
Siteler, stated that what they dreamt of in the early days could not be
realized. They had envisaged that Siteler would come to be endowed with
well-functioning institutions, including sector-specific education and
research institutions and even a forest of its own. He thought that over
time the district’s highly skilled craftsmen had gradually been replaced by
people who had the required capital but were not necessarily equipped
with sufficient skill. This, in his view, had changed the nature of the
district. ‘If it had developed as envisaged, Siteler would have been a leading
export centre; but now only 10–15 firms are engaged in exports on a regular
basis’, he lamented.
Siteler now occupies about 1250 acres of land. According to the Small and
Medium-Sized Industry Organization (KOSGEB), approximately 10000 firms
are active in furniture making and related businesses in Siteler. The number
of workers employed by these enterprises is estimated to be around 100000.
Although the cluster has managed to survive the recent challenges, Istanbul
has replaced Ankara as the leading location for furniture making and the
export performance of the cluster is still rather poor. The following pages
examine the reasons for this decline, which will enable us to comment on
the competitiveness of clusters more generally. Before proceeding with this
The Furniture Cluster in Ankara 65
analysis, however, we shall summarize the general economic outlook of
Ankara in order to put the situation of the furniture cluster into that context.
As can be seen in Table 4.3, which shows the structure of Ankara’s

economy by economic activity and share of employment, the current structure
is quite similar to that observed historically: construction and related activities,
Table 4.3 Employment in Ankara, by economic activity
1
ISIC Sector
Location
quotient
Ankara’s share of
national employmen
t
in the sectors (%)
8022 Technical and vocational secondary education 8.2230 77.33
9220 News agency activities 7.7405 72.80
4020 Manufacture of gas; distribution of gaseous fuels 5.6415 53.06
7210 Hardware consultancy 5.0227 47.24
7493 Building cleaning activities 4.9979 47.00
4520 Construction of buildings; civil engineering 4.2882 40.33
7010 Real estate activities with own or leased property 3.5444 33.33
6591 Financial leasing 3.4805 32.73
2694 Manufacture of cement, lime and plaster 3.3328 31.34
2924 Manufacture of machinery for mining and
construction
3.1600 29.72
6412 Courier activities other than the national mail
service
3.1314 29.45
7421 Architectural and engineering activities and
consultancy
2.9847 28.07
2923 Manufacture of machinery for metallurgy 2.6363 24.79

3610 Manufacture of furniture 2.5698 24.17
3000 Manufacture of office and computing machinery 2.5244 23.74
9219 Other entertainment activities n.e.c.
(not elsewhere classified)
2.4805 23.33
7250 Maintenance and repair of office machinery 2.4669 23.20
6420 Telecommunications 2.4608 23.14
8532 Social work 2.4494 23.04
1422 Extraction of salt 2.3852 22.43
3311 Manufacture of medical and surgical equipment 2.3068 21.69
7310 Research on and experimental development of
NSE (Natural Sciences and Engineering)
2.2911 21.55
4540 Building completion 2.2308 20.98
6301 Cargo handling 2.2249 20.92
5150 Wholesale of machinery, equipment and supplies 2.2110 20.79
8519 Other human health activities 2.1374 20.10
6719 Activities auxiliary to financial intermediation n.e.c. 2.1184 19.92
2925 Manufacture of machinery for food etc. 2.0585 19.36
2699 Manufacture of other non-metallic mineral
products
1.9742 18.57
2915 Manufacture of lifting and handling equipment 1.8827 17.71
2222 Service activities related to printing 1.8692 17.58
66
Ta
bl
e 4.3
(
Continue

d)
ISIC Sector
Location
quotient
Ankara’s share of
national employmen
t
in the sectors (%)
4510 Site preparation 1.8042 16.97
5141 Wholesale of solid, liquid and gaseous fuels, etc. 1.8003 16.93
2212 Publishing of newspapers, journals and
periodicals
1.7767 16.71
3312 Manufacture of instruments for measuring etc. 1.7722 16.67
7411 Legal activities 1.7068 16.05
8511 Hospital activities 1.5911 14.96
3110 Manufacture of electric motors, generators etc. 1.5355 14.44
8090 Adult and other education 1.5021 14.13
4530 Building installation 1.5005 14.11
2731 Casting of iron and steel 1.4897 14.01
5143 Wholesale of construction materials,
hardware etc.
1.4719 13.84
5139 Wholesale of other household goods 1.4699 13.82
3692 Manufacture of musical instruments 1.4425 13.57
9212 Motion picture projection 1.4228 13.38
7430 Advertising 1.4194 13.35
6021 Other scheduled passenger land transport 1.3871 13.05
5240 Retail sale of second-hand goods in shops 1.3704 12.89
7499 Other business activities n.e.c. 1.3575 12.77

2914 Manufacture of ovens, furnaces and furnace
burners
1.3556 12.75
7290 Other computer-related activities 1.3188 12.40
7020 Real estate activities on a fee or contractual
basis
1.3165 12.38
3120 Manufacture of electricity distribution
apparatus etc.
1.3088 12.31
4100 Collection, purification and distribution of
water
1.3025 12.25
1310 Mining of iron ores 1.3013 12.24
2913 Manufacture of bearings, gears and driving
elements
1.2982 12.21
2320 Manufacture of refined petroleum products 1.2915 12.15
1544 Manufacture of macaroni, noodles, couscous
etc.
1.2875 12.11
2929 Manufacture of other special purpose machinery 1.2840 12.08
2221 Printing 1.2827 12.06
2812 Manufacture of metal tanks, containers etc. 1.2811 12.05
3693 Manufacture of sports goods 1.2811 12.05
2101 Manufacture of pulp, paper and paperboard 1.2588 11.84
6720 Activities auxiliary to insurance and pension
funding
1.2473 11.73
5030 Sale of motor vehicle parts and accessories 1.2043 11.33

6023 Freight transport by road 1.2031 11.31
The Furniture Cluster in Ankara 67
the furniture industry, metal working and various services still dominate the
economic landscape. Although Ankara has experienced rapid growth as
a city, it cannot be said that industry has developed at the same pace. On the
contrary, it is rather weak relative to the size of Ankara, especially as regards
factory production. However the service sector and commercial activities
have prospered, reflecting the administrative character of the capital.
Sources of international competitive advantage
Factor conditions
Although Turkey has an adequate supply of basic materials such as wood,
chipboard, veneer, fittings and other inputs, good quality domestic inputs
are not available in sufficient quantities and at competitive prices (KOSGEB,
2000; TC Basbakanlik Dis Ticaret Müstesarligi, 1998). In addition to the fact
that Turkey does not have an abundance of free species, Turkish wood is of
poor quality. Another barrier to the development of the furniture industry
is that locally produced intermediate goods such as metal accessories are
low-quality copies of European products (Er, 1994, pp. 282–3). Hence firms
are left with little choice but to use imported inputs, and it has been estimated
that about 75 per cent of inputs are imported (Sakarya, 2001). According to
Note:
1. Top 50 industries by share of national employment and LQ greater than one.
2102 Manufacture of corrugated paper and paperboard 1.1941 11.23
8512 Medical and dental practice activities 1.1837 11.13
7412 Accounting and auditing activities; tax
consultancy
1.1646 10.95
5219 Other retail sales in non-specialist stores 1.1380 10.70
2429 Manufacture of other chemical products n.e.c. 1.1378 10.70
3140 Manufacture of accumulators, primary batteries

etc.
1.1207 10.54
3230 Manufacture of television and radio receivers etc. 1.1034 10.38
3220 Manufacture of television and radio
transmitters etc.
1.0953 10.30
2922 Manufacture of machine tools 1.0945 10.29
5149 Wholesale of other intermediate products,
waste
1.0902 10.25
2892 Treatment of metals; mechanical engineering 1.0865 10.22
2021 Manufacture of veneer sheets, plywood etc. 1.0389 9.77
2732 Casting of non-ferrous metals 1.0340 9.72
3190 Manufacture of other electrical equipment
n.e.c.
1.0305 9.69
9303 Funeral and related activities 1.0290 9.68
5010 Sale of motor vehicles 1.0172 9.57
68 Clusters and Competitive Advantage
one of the managers interviewed for this study, not only did his firm prefer
to use imported inputs but also the customers expected it too: ‘You have
a better image . . . if you use imported inputs.’ Ankara has many warehouses
that carry a variety of domestic and imported inputs. The great majority of
these are located on Demirhendek Street in Siteler and attract customers not
only from Ankara but also from other provinces of Turkey.
The furniture industry is labour-intensive and clustering has clear labour
cost advantages. However the industry is associated with substandard working
conditions and temporary employment is commonplace (SPO, 1995). Both
owners and workers usually lack formal qualifications (Er, 1994). According
to a survey by Hacettepe University (1993), a large proportion of the owner-

managers of the establishments in Siteler (70 per cent in small firms and
50 per cent in larger ones) have no secondary education. More than 90 per cent
of the respondents in small firms and almost 70 per cent in larger ones
stated that they had acquired their skills through many years of working on
the job.
5
Relatedly, one manager interviewed for this study confided that
although Siteler was the leader in the Turkish furniture industry, Istanbul
was in a more advantageous situation with regard to workers since ‘the
business environment is more vibrant in Istanbul, and thus artisans there
better know what to do and how to do it’.
Although world-class design and engineering education is available in
Ankara,
6
interviewees stated that even the most prominent institutions could
not fully satisfy the specific staffing needs of many cluster firms, especially
when it came to mid-level positions. As one of them put it, ‘In reality, there
are no sector-specific education institutions. Apprenticeship is the only way
to learn the details of this business. It is just that an educated person can
make faster progress in learning the necessary skills.’ Industrial designers work-
ing in small and medium-sized furniture firms, on the other hand, expressed
their dissatisfaction with the low wages and limited career opportunities.
One manager argued that for bright graduates the current state of the cluster
was a great disappointment. So although some institutions in Ankara offer
specialized education in furniture making and related subjects, the cluster
firms continue to suffer a shortage of qualified personnel. The need for
qualified designers and marketers in particular was frequently stressed by
interviewees.
Despite the above, many firms in Siteler prefer to employ workers who
have done an apprenticeship and worked in the district for a considerable

time: ‘There is a particular atmosphere in Siteler, and we prefer to employ
those who know how we do business here.’ The Siteler Occupational High
School was established in 1986 to contribute to the better organization of
apprenticeships, however the number of registered students has gradually
decreased, falling from more than 5000 in the 1980s to around 1000 in
2002. Interestingly the composition of students has also changed in that
at first almost all students chose furniture-related subjects, but now there is
The Furniture Cluster in Ankara 69
a growing demand for courses in other trades, such as hairdressing. Another
related theme that emerged during the interviews was that parents in Ankara
were increasingly encouraging their children to consider apprenticeship
positions in other industries, such as metal working. Moreover, ‘Since people
see no future in this business, they try to avoid it as an occupation. I know
some people from Siteler who liquidated their investments in the sector and
became truck drivers,’ said one interviewee.
Given the unstable macroeconomic situation in Turkey in general and the
high interest rates in particular, it is not surprising that cluster firms are
reluctant to use bank credit and prefer to rely on owners’ equity as a source
of finance. When asked about their opinions on bank credit, many inter-
viewees spoke extremely unfavourably, as exemplified by the following
statements: ‘If you get credit from a bank, it means that you will get burnt
sooner or later’, and ‘You take the risk of bankruptcy if you choose bank
credit as a means of financing’. This attitude can be explained by the fact
that bitter memories of the February 2001 financial crisis are still very fresh
in managers’ minds: ‘Although we know that it means slower progress, we
have preferred to rely on our own means of financing since February 2001.’
Clearly, then, financing constitutes a major problem in terms of limiting
competitive potential and thus the further development of the cluster.
Finally, the infrastructure in the Siteler region, which was very poor in the
1970s, has improved over time, supporting the view that improvements in

social and physical infrastructure usually happen after rather than prior to
cluster formation (Yurteri, 1986). However significant problems remain,
including some as basic as the continuous supply of electricity and water.
Also, while firms are not subject to the much higher rents they would have
to pay in the centre, the district has limited opportunities for expansion.
In summary, of the three major operating costs – raw materials, wages and
finance – cluster firms have an advantage only in labour cost and suffer
severe disadvantages in the others. A comparison of the price of a typical
piece of bedroom furniture in Turkey and Germany reveals that low wages
are not enough to compensate for the high material, financing and admin-
istrative costs in Turkey, which is damaging the price competitiveness of
the cluster firms.
Firm strategy and rivalry
In the Ankara furniture cluster a small number of larger enterprises coexist
with thousands of small and medium-sized ones. The dominance of small
firms can be explained by the lack of serious entry barriers to the industry,
particularly the small amount of initial capital required. New business
formation usually takes place via spin-offs. It is typical for an employee to
spot a business opportunity or to leave the firm as a result of a conflict with
the owner-manager and then establish his own business. As such people
tend to leave before they fully acquire the necessary skills, this practice is
70 Clusters and Competitive Advantage
seen as damaging rather than contributing to the dynamism of the cluster
(Porter, 1998).
Family firms dominate the cluster. These small firms are typically managed
by the owner, who is usually also the founder of the company. Typically,
owner-managers do not have any professional training but have learnt the
necessary skills as youngsters through informal apprenticeships. More
importantly, the dominant part played by the owner-manager persists even
if the firm grows into a large one, resulting in the firm being managed as

though it were still a small workshop. Kahveci et al. (1999, p. 407) report
that although there is a trend towards professionalization, professionals
usually adapt to the existing system and put little effort into changing it.
Another characteristic of the cluster is the important role assumed by
retailers. The bargaining power of retailers is very high, due mainly to the
low entry barriers to furniture making as well as to some retailers’ control
over a network of small workshops. Also, few of the furniture manufacturers
have separate marketing departments or systematically plan their marketing
activities. Under these circumstances, retailers and department stores can
dictate even the finest details of production (Er, 1994, p. 250).
The firms in the cluster are highly committed to the industry, and diver-
sification into another sector is very rare. The reason for this, according to
one of our interviewees, is that it takes a great deal of time and energy
to design and produce furniture: ‘It is a product that is very difficult to
standardize, it takes a lot of your time. It needs much effort and concentration.’
Besides, furniture making is a craft with an artistic aspect and masters of the
art are emotionally attached to the industry. One interviewee believed that
each product group required an expertise that could only be gained over
a long period of time, thus it was better for a firm to specialize in producing
say, armchairs only. It is therefore not surprising that there is a high degree
of specialization in the cluster in terms of subsectors of the furniture industry
and distinct activities in the value chain of a single furniture item.
Subcontracting some stages of the production process (such as upholstering,
wooden frame production, assembling and finishing) to different workshops
is widespread in the cluster.
7
This provides flexibility and facilitates a broad
range of prices and models. Cooperation amongst the cluster firms is usually
in the production phase, and hence vertical. Despite the dense network of
vertical relations, however, the formalization of intercompany relations and

industry representation is a relatively recent phenomenon. The sectoral
organizations are combined under the umbrella of the TAIF, a federation
that consists of chambers specializing in different subgroups of members,
including carpenters, furniture producers, upholsters and polishers. A number
of the managers interviewed thought that the associations were ‘too political’
and did not contribute much to the development of the cluster.
The cluster firms are rather sceptical about engaging in cooperative ventures
with rival firms, especially if it involves sharing information about markets
The Furniture Cluster in Ankara 71
and/or customers. One interviewee argued that, according to his recollections,
there had only been a few examples of rival firms cooperating in Siteler,
usually in the form of work-sharing during periods of high demand. In par-
ticular the possibility of strategies and products being imitated by competitors
made firms nervous about forming cooperative relations with them. The
interviewees were of the opinion that personal rivalry and the importance
attributed to being one’s own boss were playing a key role in shaping firms’
structures and strategies. They frequently used such terms as ‘aggressive’
‘insanely intense’ and ‘extreme’ when describing the nature of competition
in the cluster. In general they were opposed to this kind of rivalry since it
pushed firms into fierce price competition, often resulting in the sacrifice of
quality. On one occasion the managers of rival companies did not even
want to fly on the same plane as each other on a trip sponsored by KOSGEB
to encourage participation in international fairs. Another interesting example
in this respect was the outcome of two attempts by cluster firms to form a
sectoral foreign trade corporation.
8
The product of the first of these attempts,
Ankara Mobilya, lasted only a short while, and the second, MOSAS, could
hardly be called a success and is currently undergoing a major restructuring.
The lack of success is attributed to the fact that the managers and leaders of

individual firms were too busy with their own endeavours to spare the
time. Another probable reason is that firms were reluctant to share information
on customers and foreign contacts with their competitors.
The furniture firms in Ankara produce a broad range of articles in traditional
and modern styles. However they rarely have in-house design units, and
original design is a rare phenomenon. Instead it is common to copy the
designs of foreign (usually European) producers. Alternatively they copy
each other’s designs, which hitherto has been made possible by the weakness
of the regulations on intellectual property rights. As one manager observed:
‘The reason we are lagging in terms of design is because we cannot protect
original designs properly. It has only very recently come to the agenda. We
still lack experts in this area. But it is developing. We have managed to
get results relatively quickly in a few court cases, for instance.’ Also, in
small, family-run firms original designs are only accorded importance if the
owner-manager is convinced of their necessity. If that person happens to be
a designer (as in the case of Koleksiyon, for example), than greater importance
is likely to be given to design.
In many countries considerable use is made of computers in furniture
design and manufacturing, but in Ankara this is only in the very early stage.
Moreover workshops are usually equipped with rather basic machinery, and
Erzurumluoglu (1991) has found that some companies prefer to remain
semimechanized in order to exploit their labour cost advantage. There are
also segments that can be no other than labour-intensive, such as the pro-
duction of traditional furniture with carvings, which requires the expertise
of master craftsmen.
72 Clusters and Competitive Advantage
Institutions that provide technical and marketing information and arrange
seminars and trade fairs (the latter can have a strong influence on furniture
design and public taste, as do the Triennale exhibitions in Milan) either do
not exist or are weak in Ankara. Thus information on foreign markets is lim-

ited, and acquiring such information depends on individual initiatives.
Although participation in trade fairs is increasing, the attendance rate is still
low. This can be explained by the furniture makers’ limited interest in
exporting, the difficulties associated with transportation and the high cost
of floor space at fairs (OAIB and KOSGEB, 1996).
To summarize, the furniture cluster in Ankara is dominated by small fam-
ily firms that largely focus on the domestic market. There is an extensive
network of subcontracting relations and thus vertical cooperation. However
rival firms compete fiercely, resulting in damaging price competition. Origi-
nal designs are rare, and firms instead adopt a copy-cat strategy.
Related and supporting industries
An examination of trade data reveals that of the 22 (SITC five-digit) subsec-
tors of the Turkish furniture industry, only six are competitive in inter-
national markets. These, plus, related sectors and institutions that exert an
influence on the industry, are shown in Figure 4.1.
Materials and metals
Wood: rough,
painted and preserved
Metallic
decorative items
Wooden office
furniture
Metal office
furniture
Mattresses
Motor vehicles
Education and research institutions Governmental institutions
Textiles and apparel
Housing and household
goods

Construction
services
Adjustable
swivel
seats
Seats,
convertible
beds
Motor vehicle
seats
Figure 4.1 Internationally competitive subsectors of the Turkish furniture industry,
plus related sectors and institutions
Note: Industries/institutions with a presence in Ankara are shaded.
The Furniture Cluster in Ankara 73
The furniture industry is linked to three of the strongest sectors of the Turkish
economy: housing and household goods, textiles and apparel, and materials
and metals. The industry is also associated with the construction industry,
which is internationally competitive, and with motor vehicles, whose export
performance has improved in recent years. On the other hand Turkey is not
competitive in many subsectors of the timber industry in terms of both price
and quality (SPO, 1995). For example the export performance of the fibreboard
and particleboard subsectors is rather poor. The local machinery sector is
weak as well, and state-of-the-art, sector-specific machinery is imported from
Europe, especially from Germany and Italy, which together hold more than
half of the world market in this product category (OAIB and KOSGEB, 1996).
As mentioned above, the Turkish construction industry has become inter-
nationally competitive and many of the major construction companies have
chosen to locate their headquarters in Ankara, bringing considerable benefits
to the Ankara furniture cluster. The important contribution that Turkish
contractors’ activities abroad have made to furniture exports is frequently

mentioned in the literature (for example Erzurumluoglu, 1991; SPO, 1995).
In the 1980s and early 1990s, Middle Eastern and African countries, especially
Libya, were the leading markets for Turkish furniture exports, but towards
the end of the 1990s Germany and former republics of the Soviet Union,
especially the Russian Federation, became the most important foreign
customers (Koç et al., 1999). This shift from the Middle Eastern and North
African markets to Russia and former Soviet republics closely matches the
path taken by Turkish construction firms in their international operations
(Öz, 2001). The development of the contract furniture subsector has played
an important part in strengthening the links between the two industries.
Also, when the construction industry is booming, this has a positive impact
on the Ankara cluster, especially with respect to kitchen and bathroom
furniture and interior decoration.
In summary, of the competitive industries with links to the furniture
industry, only construction and metal-working are located in Ankara. It
therefore cannot be said that the furniture cluster in Ankara is surrounded
by a group of competitive related industries, although the presence of the
construction and metal-working industries as well as some supporting
institutions (such as KOSGEB-Siteler) signals that a potential does exist.
The role of the government
As discussed at the beginning of this chapter, the decision to make Ankara
the capital of the newly established Republic of Turkey was instrumental in
the early development of the furniture cluster. More recently, in the 1980s,
the liberalization of imports served to educate both producers and consumers,
and prompted some furniture firms to look for export markets.
KOSGEB-Siteler is the main local governmental institution to support the
development of the furniture cluster.
9
Another governmental institution,
74 Clusters and Competitive Advantage

IGEME, concentrates on export promotion.
10
However, larger enterprises
usually have their own export departments, while very small firms and
workshops are either unaware of the services provided or have little interest
in them as they do not intend to export. The high levels of bureaucracy and
red tape constitute major drawbacks for firms in this regard. Another
government-related problem is the absence of stringent quality and service
standards. The managers interviewed for this study thought that the industry
was ahead of the governmental institutions in this respect: ‘Many years ago,
I contacted some governmental institutions and several universities to solve
a technical matter. None of them could help me. After that experience, I did
not look for any other contacts with them since they are lagging behind. In
fact, some governmental institutions do admit that we are ahead of them.’
Some of the smaller workshops are able to create unfair price competition
by operating in the so-called ‘grey economy’, in which workers are not
insured and taxes are not paid in full. An indication of this is that some of
the managers interviewed were reluctant to disclose the size of their work-
force. In general the interviewees repeatedly stressed the negative impact of
the macroeconomic conditions in Turkey and the difficulty of doing
business in such an environment, in which ‘it would be more profitable
to liquidate your assets and make use of the persistent high interest
rates’. The opportunity cost of conducting industrial activities is, in other
words, high in the prevailing circumstances. Overall, government-induced
problems are considered to be the greatest barriers to the further development
of the cluster.
Reasons for geographic concentration
This section addresses the question of why furniture firms concentrate
geographically and investigates why they have concentrated in Ankara.
The section also considers the changing image of the furniture cluster in

Ankara. Before we proceed with this analysis, however, it is necessary to
highlight the phenomenon discussed earlier in this chapter: the further
concentration of furniture and related businesses in the district of Siteler.
Tables 4.4–4.7 provide details of this concentration by street. A map of
Siteler is presented in Figure 4.2.
One major reason why furniture firms tend to be geographically concentrated
is related to demand. Furniture firms are usually located in populated urban
areas where the potential demand is high and distribution and marketing
facilities exist. It is also more convenient for customers. As one interviewee
explained: ‘If sellers are concentrated, shopping takes place faster. Customers
also feel that they are better informed when they have an opportunity to see
many alternatives.’ Another reason is the local availability of specialist
inputs, particularly human resources, plus related and supporting industries.
With regard to the latter, each item requires specialist expertise, and the
75
Table 4.4 Concentration of furniture firms in Siteler, by street
Note: Only streets with an LQ of more than one are included.
Street Percentage share of the local sector Location quotient
Atilgan Street 1.12 1.5130
Kalim Street 0.54 1.4422
Akbal Street 0.74 1.3755
Özdes Street 0.77 1.3468
Ere
gli Street 9.39 1.3255
Yalinç Street 2.18 1.3137
Akçakale Street 4.32 1.3115
Bilgin Street 1.12 1.3094
Onay Street 0.17 1.3094
Altinözü Street 0.57 1.2470
Senyüz Street 0.57 1.2470

Dizboyu Street 1.86 1.2335
Sirma Street 1.89 1.2002
Fatih Street 2.18 1.1847
Açiktan Street 2.26 1.1493
Yanki Street 1.17 1.1184
Özgü Street 2.52 1.0819
Dolanti Street 2.23 1.0639
Çamlitepe Street 10.82 1.0559
Kartalcik Street 3.72 1.0556
Muradiye Street 0.74 1.0556
Bilecik Street 0.37 1.0316
Yapit Street 1.00 1.0017
Table 4.5 Concentration of carpenters in Siteler, by street
Percentage share of
the local sector Location quotient
Samsun Highway 0.30 2.2626
Ulubat Street 5.49 1.9357
Dikmeli Street 2.52 1.8995
Yapici Street 3.41 1.6137
Senkal Street 4.30 1.4829
Karacakaya Avenue 9.27 1.3696
Karpuzlu Street 7.27 1.1921
Toptas Street 2.67 1.1891
Yapit Street 1.11 1.1128
Köycegiz Street 2.52 1.0990
76
Note: Only streets with an LQ of more than one are included.
Table 4.5 (Continued)
Percentage share of
the local sector Location quotient

Özgü Street 2.52 1.0835
Demirhendek Avenue 8.38 1.0743
Serince Street 2.60 1.0489
Çamlitepe Street 10.68 1.0426
Altinay Avenue 2.15 1.0415
Ya
giz Street 0.59 1.0344
Bilecik Street 0.37 1.0285
Açiktan Street 2.00 1.0182
Fatih Street 1.85 1.0101
Kopça Street 3.34 1.0031
Table 4.6 Concentration of upholsterers in Siteler, by street
Note: Only streets with an LQ of more than one are included.
Percentage share of
the local sector Location quotient
Toptas Street 7.01 3.1222
Safir Street 1.98 2.8782
Koçak Street 4.73 2.4850
Köyce
giz Street 4.88 2.1254
Çalim Street 1.98 2.0489
Altinay Avenue 3.96 1.9188
Kopça Street 5.64 1.6949
Bilecik Street 0.61 1.6907
Ya
giz Street 0.91 1.5941
Kartalcik Street 5.49 1.5570
Senkal Street 4.42 1.5235
Sarigül Street 3.20 1.4906
Dolanti Street 3.05 1.4529

Muradiye Street 0.91 1.2975
Demirhendek Avenue 9.76 1.2503
Karacakaya Avenue 7.77 1.1483
Karpuzlu Street 6.86 1.1249
Serince Street 2.74 1.1085
Dalboyu Street 1.83 1.0237
Tasdelen Avenue 1.83 1.0237
Yanki Street 1.07 1.0171
Tezcan Street 3.35 1.0077
The Furniture Cluster in Ankara 77
ready availability of, say, polishers, is essential for firms that rely heavily on
subcontracting. Moreover, according to the managers interviewed, firms can
gain a better understanding of rival firms as well as the nature of competition
when there is geographic concentration: ‘You can always see what the
neighbouring company is doing and can decide how to respond.’ In this
environment, firms find it easier to keep up with the latest developments.
One interviewee mentioned that friends from small towns in Anatolia had
to visit him frequently just to see what was going on.
While the above factors generally explain why furniture firms tend to
concentrate and confirm the theoritical reasons for geographic concentr-
ation (see Chapters 1 and 2), they do not fully explain why firms have
concentrated in Ankara. As the capital of Turkey, Ankara hosts many
governmental institutions, which adds to the attractiveness of the city as
a location for furniture producers. ‘Since many construction firms, public
institutions, the defence industry and several big universities are located in
Ankara,’ said one interviewee, ‘Ankara has many advantages, especially
regarding office furniture.’
Table 4.7 Concentration of polishers and varnishers in Siteler, by street
Note: Only streets with an LQ of more than one are included.
Percentage share of the local sector Location quotient

Sariçam Street 0.33 5.0664
Onay Street 0.33 2.5332
Senyüz Street 0.83 1.8094
Dalboyu Street 3.16 1.7663
Bilgin Street 1.33 1.5589
Sarigül Street 3.32 1.5470
Sirma Street 2.33 1.4777
Köyce
giz Street 3.32 1.4475
Ya
giz Street 0.83 1.4475
Demirhendek Avenue 10.96 1.4050
Toptas Street 2.99 1.3313
Serince Street 3.16 1.2750
Yapit Street 1.16 1.1628
Çamlitepe Street 11.63 1.1349
Karacakaya Avenue 7.64 1.1286
Tasdelen Avenue 1.99 1.1155
Yanki Street 1.16 1.1083
Yapici Street 2.33 1.0997
Tezcan Street 3.65 1.0981
Altinözü Street 0.50 1.0857
Kartalcik Street 3.82 1.0840
Dolanti Street 2.16 1.0291
78
Ç
a
m
l
i

t
e
p
e
S
t
Ulubat St
Fatih St
Karpuzlu St
A
ç
iktan St
Dulboyn St
TASDELEN Ave
Yapit St
Samsun Highway
Kalim St
Yalinç St
Dolanti St
Yapici St
Yagiz St
Koçak St
Çalim St
Özgü St
(Yildiz Yolu)
Karpuzlu St
Dikmenli St
Karacakaya Ave
Demirhendek Ave
Kopça St

Kartalerk St
Senkal St
Karpuzlu St
ÇAMLITEPE St
Yanki St
Bilgin St
Õzdes St
ALTINAY Ave
Dizboyu St
Sariçam St
Sirma St
Akbal St
Onay St
Sarigül St
Bilecik St
Atilgan St
Tezcan St
Karacakaya Ave
Muradiye St
Demirhendek Ave
Serince St
Ak
çakale St
Köycegiz St
Eregli St
Senyüz St
Figure 4.2 Map of the furniture district in Siteler, Ankara
Source: KOSGEB.
The Furniture Cluster in Ankara 79
As noted at the start of this chapter, the construction boom that followed

the designation of Ankara as the Republic’s new capital triggered the revival
of the forgotten tradition of furniture making in Ankara. From a theoretical
point of view, this highlights the important part played by the presence of
a related industry in the emergence of a cluster (Porter, 1998). The growth
of Ankara as the capital of Turkey, on the other hand, can be considered
a chance event or a historical accident, as defined in the literature (Krugman,
1991a). Interestingly, historical accidents might play a part at the level of
individual firms as well. For instance one interviewee mentioned that his
father had gone to Ankara to attend the university (a chance event). Upon
graduation he had decided to stay on in the city and establish a furniture
firm, ‘since furniture was one of the few industries with a growth potential
in Ankara’. This incident underlines the self-reinforcing nature of clustering
in that the presence of people who have made a success of a venture invites
further investment in the location, which in turn reinforces the growth
of the cluster (Porter, 1998).
It should be noted that the existence of demand does not of itself explain
the emergence of the cluster in Ankara. For example in another highly
populated Turkish city, Antalya, there has been an enormous demand for
hotel construction during the last two decades but this has not triggered the
development of a furniture cluster there. Instead furniture is often imported
from Ankara, which is not surprising given that the firms constructing the
hotels are based in Ankara.
11
In addition to the existence of demand,
Ankara’s status as the capital of Turkey and the strong presence of a closely
related industry (construction), another benefit Ankara offers the furniture
industry is its climate. In particular its low humidity is of crucial importance
in furniture making, providing Ankara with an advantage over many other
furniture producing regions, such as Istanbul. Its geographically central
location is also an advantage since furniture is bulky and its distribution

incurs relatively high transportation costs. According to one interviewee,
however, the real advantage of Ankara as a location is the accumulated
experience and know-how that the city has acquired in furniture production
over the years: ‘it is not only my skills and knowledge but the accumulated
know-how in the region plus my knowledge’.
The following story by one of the managers interviewed, who had moved
his firm from a small province in Anatolia to Ankara, is very informative:
‘Many years ago a foreign customer visited our firm and said that although
our firm was very good, as there were virtually no related businesses in the
place where the firm was located at the time he would not do business with
us. He thought it would be very difficult for an isolated firm to manufacture
good-quality products on time. We later heard similar statements again and
again, so realized that we had to move. This is how we came to Ankara. But
now, looking back, I think that it was the wrong decision; we should have
moved to Istanbul. I believe Ankara is the wrong place to grow, the wrong