Global Financial Crisis in the Turkish Shipbuilding Industry - Essay Example

Literature Review The Effects of the Global Financial Crisis on the Turkish Shipbuilding Industry The global recession has affected many established industries and businesses. Irrespective of the nature and the size of the business establishment, each and every production and manufacturing unit has been hit hard with the bleak and dismal financial situation that is still continuing. One such industry is the Turkish shipbuilding industry. The aftermath of the current global scenario is having disastrous effects on this industry. The Turkish shipbuilding industry: The growth and statistics prior to the global recession This industry is nearly six hundred years old and the first shipyard in Turkey was established in the year 1390. This particular industry in Turkey is renowned as the enterprise that has recorded the world’s fastest growth rate. Prior to the international disaster setting in, it was flourishing and was considered to be Turkey’s trademark and a proof of the active role it played in world economic trade scenario. “The Turkish shipbuilding industry has made a considerable contribution to the Turkish economy with 1.5 billion $ from new ship building, 1 billion $ from repair and maintenance activities. Furthermore, industry creates an employment opportunity to 25,000 people directly and 100,000 people in total with related industries. In 2007, 98 ships with a total of 670.000 DWT were delivered. 80 Ships and yachts were already contracted for 2008. Over the past three years, Turkey has gone from being the world’s 23rd largest shipbuilder to being 8th on the list.” (Tulay Uyanik) It was truly global in its reach and remained commercially lucrative and profitable for a very long period of time till the worldwide financial recession gripped this business too in its vicious claws. Mr.Zaman, Minister of Transport Binali Yildirim says, “The shipbuilding capacity has increased by an average of 65 percent in the last four years. The number of shipyards operating or about to start operating in Tuzla as well as in the Black Sea, Izmit Gulf, Yalova, in the Aegean or Mediterranean has reached 60. We used to build ships of up to 20,000 tons maximum but we are currently able to build ships of up to 60,000-70,000 tons.” (www.turks.us) Effects of the global financial crisis A. Decrease in the volume of exports The once-prosperous community of owners who were doing extremely well earlier are now facing a grim situation coupled with many challenges like the over-valued lira which is the currency of Turkey, an unexpected spurt in the overall costs of running the ships and large amounts of contributions made towards the social security benefits of the crew members aboard these active ships. The high costs of protecting the workers’ interests increased the maintenance costs by leaps and bounds. ‘Exports in the sector reached USD 2 billion in 2007, up from USD 1.4 billion in 2006. This amounts to a nearly 23% increase in export potential over a single year. In recent times, the situation has changed and over the last four months alone there has been a serious decline in the overall production process-as high as a 9% decrease.’ (The Hurriyet). Owners of Turkish ships are being forced to use the management and bandwidth of external third-party crews because of the lack of an adequate and optimal number of available seafarers. B. Layoffs The Turkish shipbuilding industry is completely ruled by the prevailing financial condition. It is literally riding stormy seas now because of the credit crunch directly impacting it in a highly negative manner. Sources state that of the 28,500 employees working in the ship building industry, nearly 7000 workers were laid off, as the employers were left with no other choice. (Mazlum-Der-A human rights organization). Says Erkan Selah, vice chairman of the Turkish Shipbuilders Association, or GISBIR, “We did not layoff any workers.” Some white-collar employees were affected, but we are determined not to lose our staff directly involved in production. This is our last resort.” To compensate for their losses and get some financial aid, the ship owners requested the government to grant them ‘support packages’ to deal with the situation as the input costs were soaring sky-high. However, the banks themselves were not too keen on lending them any money because they were not confident enough that the ship building industry would be able to repay their loans in the wake of the global recession. C. Degradation of employee working conditions It is important to note that the gradual downfall of the Turkish industry was not a direct effect of the financial crisis. This situation seems to have started with the deaths of a large number of workers since 2000. Nearly 62 workers of the Tuzla shipyards lost their lives, with nearly 12 of them dying in 2008 alone. Most of the workers were allotted workspaces that were actually suitable for just a quarter of the original workforce. To add fuel to the fire, the media worsened the situation by creating a furore and provoking the public to act on it. The employers were hit hard due to this negative advertising they received, while for the media it was nothing more than yet another story to write about. “No doubt in the near future things related to the human factor will dramatically change, says Orhan Karademir, Geden’s fleet manager and adds, “Continuous training is very much on our agenda because we will know that a lack of seafarers is a serious problem which could directly affect safety and environmental protection.” This situation clearly represents the case of a vicious circle, wherein each production factor of the shipbuilding enterprise is being affected by the financial crisis. It is setting off a chain reaction of its own accord and this is affecting the industry and making it even more difficult for it to recover sooner. The financial crunch has lead to the creation of pathetic working conditions and hit the Turkish shipbuilding efforts by increasing the miscellaneous investment costs for shipbuilders. D. Change in business methodology The production patterns are being altered to try and accommodate the expenditure involved in running a business enterprise of this magnitude. The industry is still superior in terms of innovation and technology, but it still doesn’t help the situation because the current global financial crisis has lead to the complete and total loss of any semblance of a competitive advantage. There was a sudden and major dip in the demands for ships that transported cargo accompanied by innumerable contract-based cancellations and this hit the shipbuilding industry in a very big way. It is humanly impossible to change the operating business system to make way for a two-tier structure where the needs and interests of the various communities along the entire production and manufacturing chain not only will be taken into consideration but also will be prioritised in an efficient and methodical manner. The global financial crisis has made the task of creating a balanced business structure not just difficult, but almost impossible for a long time. E. Regulatory challenges Turkish labour laws are extremely rigid. A prime requisite for a modern-day industry and dynamic business establishment is flexibility. There has always been a conflict of interests between the stringent labour laws and the flexibility of Turkey’s growing shipbuilding industry. Since the requirements and growing need for flexibility are not being met, all shipbuilders are forced to get their work done by contractors who work on these irregular or batch projects, while the urgent need of the hour is to employ a solid, fixed-term workforce. As a result of this, working standards and regulations are not met because work is allocated only to these informal and semi-formal builders, which lead to many problems and difficulties in regulating the business. It is impossible for the shipbuilding business to break even if it imposes such non-profitable regulations. However, due to the global financial situation, no measures are being taken to correct the situation as everyone needs to lower their costs and this is not feasible by employing a standard workforce that is permanent, non-contractual and also much more suitable. These archaic elements and ancient systems of governing have only been further strengthened by the recession. F. Exchange rates The lira was already overvalued, prior to the financial crisis of 1994 and 2001. The recession lead to a currency crisis caused because of overvalued exchange rates. This overvaluation could also be a contributing factor responsible for the depressing condition of Turkey’s exports and its current lack of a viable competitive edge. “Policymakers have to weigh the need for devaluation to boost exports versus keeping inflation low because the share of imported raw materials and capital goods in total imports is high.” (Guncavdi and Orbay, 2001). Kalkan (2002) finds that increasing rates of depreciation cause real depreciations, which he interprets as a dilemma for the government. References: 1. Assessment of European shipbuilding industry’s current situation and its future prospects-Paper by George P. Vlachos, D.E.A Doctorate and Emmanouil Nikolaidis, PhD 2. The Maritime Transport Crisis By Hans Jürgen Peters Published by World Bank Publications, 1993-49 pages 3. The World Shipbuilding Industry By Daniel Todd Published by Taylor & Francis, 1985-376 pages 4. Turkish Maritime Transport and Local Shipbuilding Industry Survey By Devlet Planlama Teşkilatı (Turkey, Devlet Planlama Teşkilatı (Turkey) Published by [s.n.], (1970). 172 pages. 5. Misaligned? Overvalued? The Untold Story of the Turkish Lira by Deniz Atasoy and Sweta C. Saxena University of Pittsburgh Read More