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China-Turkey Electronics Trade Soars Despite Quality-Control Concerns

With 95% of the components Turkish electronics manufacturers rely on having to be imported, China is in pole position to be the lead supplier, but lingering concerns over the quality of mainland-originated products continue to deter specifiers.

Photo: High-tech Turkey: As it embraces automation, demand for imported components has surged. (Shutterstock.com/OVKNHR)
High-tech Turkey: As it embraces automation, demand for imported components has surged.
Photo: High-tech Turkey: As it embraces automation, demand for imported components has surged. (Shutterstock.com/OVKNHR)
High-tech Turkey: As it embraces automation, demand for imported components has surged.

Turkey is pushing ahead with large-scale factory automation, creating huge opportunities for China's electronics-manufacturing sector. Predictably, then, Chinese exhibitors were well-represented at Istanbul's WIN Eurasia 2018 trade fair, one of Turkey's largest showcases for manufacturing technology. Many of the assembled mainland businesses had high hopes of securing substantial orders, a far from unreasonable aspiration given that more than 95% of the electronic components used by Turkish manufacturers are imported.

Components aside, the Turkish electronics sector is actually quite substantial. According to the Turkish Electronic Industrialists' Association (TESID), the country's total electronics industry production was worth US$13.5 billion in 2015.

Across the country, the industry falls into six subsectors – telecommunications equipment, consumer electronics, computers, defence-industry electronics, professional and industrial equipment, and components. The largest of these is consumer electronics, which makes up 23% of the total, with professional and industrial equipment taking second place with 17%.

Among the Chinese companies looking to serve these various sub-sectors was Xiamen-based Hongfa, a long-established supplier of relay devices, switchgear and low-voltage devices. Explaining just what had brought his company to the fair, International Sales Vice-director Aviva Chen said: "Our products have many applications in industry, solar energy, hybrid / electric cars and residential use. They are also used for control systems in building construction.

"We pride ourselves on offering quality at a competitive price. We sell into 120 countries, but Turkey is important for us because there are no local manufacturers of relay products and there is a lot of building work under way."

The China SNS Pneumatic Company was also keen to make an impression on potential clients. Operating out of the eastern coastal province of Zhejiang, it's one of China's leading manufacturers of fast connectors, air combinations and solenoid valves.

According to Zoe Zhu, the company's International Trade Manager, Turkey is ripe for businesses like hers. Expanding on her thinking, she said: "Turkey only has a few factories making the kind of items we produce. At present, we are only selling parts, but in the future we aim to build and sell finished machinery.

"The world is coming to rely more and more on automation. This is a very crucial development phase and we have to secure the space that is quickly opening up in the Turkish market as more and more of its factories embrace smart technology.

"The only downside for us is the demands the Chinese banks make when it comes to processing payments from Turkey. We have to supply a huge number of documents, including invoices, contracts and bills of lading to make it clear we are not involved in money-laundering activities."

One of SNS's longest-standing customers is Javad Jafar, an Iranian businessman, who was visiting the fair to source parts for Ardalan, his industrial hose company. Clearly happy with his Chinese supplier, he said: "I have been buying parts from SNS for more than 10 years. It's always a balancing act between price and quality, but we are very satisfied with them overall. Some Chinese companies, however, are perhaps not quite so good."

Turkey's Potential

On a mission to raise its profile in Turkey was the Shenzhen-based JHC Technology Development Company, a specialist in industrial computer manufacturing. Explaining why the company was now attending its fourth Turkish expo, with more planned, Sales Representative Carrie Yang said: "We are very keen to grow our customer base here, as we believe the country has a lot of potential. We are, however, a little worried about the current political uncertainty and the fighting in next door Syria.

"There is also the fact that some Turkish factories make the same products we do. Despite that, we are confident we can compete in terms of both price and quality."

By contrast, Yueqing-based Laize, a manufacturer of pneumatic parts, was a compete newcomer to Turkey, with the event the first of the country's trade fairs it had attended. Explaining its decision to explore the Turkish market, Foreign Trade Manager Lida Liu said: "Previously, we have targeted Vietnam and India, but we think the time is now right for us to get serious about Turkey."

Overall, most of the Chinese exhibitors were quietly confident about their prospects in Turkey. One that was particularly upbeat was the Jiangsu-based Joel Plastic Company, a manufacturer of synthetic granules and resins for plastic mouldings, which are primarily used in electrical housings, switches and toilet seats.

Citing the lack of local competition as the reason for the company's confidence, Foreign Trade Manager Yu Yingge said: "While we already have a number of Turkish customers, we believe there are far more opportunities here, especially at the moment when the import tax is only 5%. There is only one Turkish company making similar products and we believe our range is superior."

Photo: Aydin Trafo’s compressor range.
Aydin Trafo's compressor range.
Photo: Aydin Trafo’s compressor range.
Aydin Trafo's compressor range.
Photo: The China SNS production line.
The China SNS production line.
Photo: The China SNS production line.
The China SNS production line.

It was a point echoed by Jason Gong, the Manager of Guangzhou-based Weide, a manufacturer of servo drives, motors and gearbox solutions. Making the case for his own business, he said: "We have no real competition in Turkey. With local companies having to source from Taiwan, Japan or [mainland] China. We already have two major customers here and they are more than happy with our prices and our quality."

Economic Worries

Despite the largely upbeat sentiment among the mainland contingent, there was at least one dark cloud hanging over the prospects of increased trade with Turkey – the ongoing concern over the state of the country's economy. More than one analyst has already warned that it may be over-heating, with rapidly rising domestic demand driving up imports, causing its current-account deficit to grow and the Turkish lira to go into freefall.

Making a realistic assessment of the Turkish economy, Yasemin Engin, an Assistant Economist at Capital Economics, a London-based research consultancy, said: "Turkey's large current-account deficit and dependence on foreign capital to finance it makes its economy particularly vulnerable to external shocks."

Citing the fact that Turkey had suffered similar problems in late-2011 and mid-2013, he said: "This time around, the financial excesses aren't as extreme as they were back then. Credit growth has actually slowed over recent months and asset prices arguably look less frothy. Even so, the signs from the recent data are ominous."

Many in Turkey maintain, however, that even an economic downturn will not stop the rush to automation, which will come as some reassurance to would-be Chinese exporters. Taking a somewhat pragmatic view, Gamze Saydam, Export Manager of Aydin Trafo, an Izmir-based compressor manufacturer, said: "Automation is now a fact of life. We started buying components from China about 10 years ago, as the parts we wanted were not made in Turkey. At first, we got a lot of negative feedback when we used them in our products and we had to change supplier. Today, though, we are still buying from China."

Quality Concerns

As is almost traditional, a number of Turkish attendees at the event were quick to assert their concerns over the quality of China-sourced products and it seems that not all are fans. Berkalp Aviral, Marketing Manager for Elimko, an Ankara-based electronic instrumentation and temperature-monitoring company was one such cynic.

Outlining his own negative experience, he said: "You have to be cautious. One of our customers is Paşabahçe, a leading manufacturer of glassware, tableware and ornaments. They cannot afford their temperature-gauge equipment to fail at any point during the manufacturing process with tens of thousands of dollars' worth of goods at stake. So, while we do buy some parts from China, we don't buy the most essential ones."

Less guarded was Tolga Kaynar, the Sales Manager of Lupamat, an Izmir-based compressor manufacturer. Maintaining that quality control remains an issue for many mainland manufacturers, he said: "Unfortunately, many in Turkey have little faith in the 'made in China' label. For our part, while China-based suppliers are constantly offering us parts to try, we find that they frequently fail when put to the test in our laboratories."

Perhaps the most extreme reaction came from Cem Coşgüner, a Sales Consultant with Mikropor, an Istanbul-based manufacturer of compressed air driers and air / oil separators. Making a stark assessment of the shortcomings of mainland manufacturers, he said: "We don't use Chinese products. In the past, when we have tested sample parts, the quality was not up to the standard we require. Our products are used in hospitals and pharma companies so reliability is of paramount importance."

Taking an overview of the problems that still dog the China-Turkey trade in electronic components, Professor Okyay Kaynak of Bogazici University's Department of Electrical and Electronic Engineering said: "China is an important partner for Turkey, particularly in the economic sphere. It has been among the top three sources of Turkey's imports for many years as well as being one of the top 15 destinations for Turkish exports.

"In terms of the volume of imports of electronic goods for industrial purposes from China, though, it is difficult to give exact numbers. Using the latest government statistics, my estimate is that, for 2016, electrical components made up about 15% of Turkey's total $25.4 billion of imports from China and about 10% of the $23.4 billion 2017 figure. Whatever the exact numbers are, they are far from what they could be and, indeed, from what they should be.

"One solution, I think, is that we in Turkey should view China's Belt and Road Initiative as an enabler, a way to not only increase trade, but also to improve relations all round, including collaborative research, student mobility and tourism."

Photo: WIN Eurasia 2018: Will distrust ultimately thwart wider China-Turkey technology transfer?
WIN Eurasia 2018: Will distrust ultimately thwart wider China-Turkey technology transfer?
Photo: WIN Eurasia 2018: Will distrust ultimately thwart wider China-Turkey technology transfer?
WIN Eurasia 2018: Will distrust ultimately thwart wider China-Turkey technology transfer?

WIN Eurasia 2018 took place from 15-18 March at Istanbul's Tüyap Fair Convention and Congress Center.

George Dearsley, Special Correspondent, Istanbul

Content provided by Picture: HKTDC Research
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