The Textile and Apparel Industry in Turkey and

282 Pages·2006·3.43 MB·English

by  Evgeni Evgeniev

Central European University
Political Science Department

Industrial and Firm Upgrading in the European Periphery
The Textile and Apparel Industry in Turkey and Bulgaria

by
Evgeni Evgeniev

Thesis submitted to the Political Science Department of the Central European University
in partial fulfillment of the degree of Doctor of Philosophy

DOCTORAL DEFENSE COMMITTEE

Associate Prof. Dorothee Bohle, Central European University (Supervisor)
Prof. Colin Crouch, The University of Warwick, United Kingdom
Prof. Jaap Dronkers, European University Institute, Italy
Prof. Béla Greskovits, Central European University, Hungary
Prof. Mihály Laki, Institute of Economics, Hungarian Academy of Sciences, Hungary

BUDAPEST
October 2006
I hereby declare that this thesis contains no materials accepted for any other degrees in
any other institutions. This thesis contains no materials previously written and/or
published by another person, unless otherwise noted.

Copyright © 2006 by Evgeni Evgeniev
All rights reserved
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To my mother, who has greatly inspired my life

iii
ABSTRACT

Under what conditions is upgrading of the light leading export sector possible? This
dissertation embarks on the case of Turkey (1983-2003) and Bulgaria (1995-2003) to
analyze the factors that determine local upgrading, thus furthering economic development
and improving standing in the global economy. Drawing on primary reports, interviews,
secondary literature (Sectoral Analysis, Global Value Chains and Business Association)
and empirical analysis at the sectoral, network and firm level, the thesis demonstrates
Turkey’s success and Bulgaria’s failure in industrial and firm upgrading. The claim of the
thesis is that the modern state and the modern sector are not just static entities. The
effects of the new technologies of production and organization of services have a
tremendous impact on them which creates a diversity of responses. The responses drive
the process of collaboration between the state and the sector. This collaboration is
identified as State-Sector Aptitude Building and it helps local firms to re-position in
higher value added segments of global value chains to improve industry’s export position
in the global economy.

KEYWORDS: textile and clothing industry, global value chains, sectoral analysis,
industrial and firm upgrading, Central and Eastern Europe, periphery, Bulgaria, Turkey.

iv
Acknowledgements

When I started the PhD program at CEU in September 2001, I did not have even the slightest idea that
professional and personal life will be affected to such an extent by the selection of topic and countries. I
embarked on a topic related to the textile and clothing industry, which I hardly new. I remember that it was
my theoretical interest in Global Value Chains and Sectoral Analysis which drove me into this. Three years
after my inception, I was already involved with the national strategy team for development of the clothing
and later, the textile strategy of Bulgaria.

I felt that working on this dissertation is not an end in itself, but it is rather a process. I was guided through
this by a large group of people and institutions and these words of gratitude are directed to all of them. If it
was not the generous support with a PhD grant and research grants by CEU, I would not be able to do this.
During the research stage of my dissertation, I spent time at the Social and Political Science Department of
the European University Institute in Florence (Italy) and the History Department of the Bosphorus
University in Istanbul (Turkey), while the Political Science Department at CEU was my home. I would like
to thank the scholars, students and administrators of all these departments for accepting me as a member of
the family and helping me in very crucial moments of my academic life.

The first and greatest debt I have run up in writing this thesis to my supervisor, Dorothee Bohle. I thank her
for the time and interest, invaluable pages of comments and patience. It is also hard to believe that the
thesis would have been completed without the constant support, encouragement and inspiration by Béla
Greskovits and Mihály Laki. Their teaching and guidance profoundly changed my views and understanding
of political economy.

I owe special thanks to Colin Crouch, who has not only accommodated me well in the inspirational
environment of EUI in Florence but has been also a careful listener and guided me through the application
of the unit value analysis. I am indebted to Jaap Dronkers with whom I have taken a computer statistical
course at EUI and who has generously provided his time in numerous consultation hours on the application
of multivariate analysis. Gary Gereffi, Jennifer Bair, Svetlozar Andreev, and Yogeetha Garib have been
extremely helpful in different stages of my work by reading and commenting on the application of
industrial and firm upgrading and multivariate analysis. I am also indebted to Zainiddin Karaev and
Svetoslav Salkin, colleagues at CEU, who patiently listened my thesis arguments and supplied advice on
numerous occasions. I am also utterly grateful to Michael Shafer who has been very supportive and
inspirational at the beginning of my work.

It was thanks to Aslı Deniz, Business Council coordinator at Dış Ekonomik İlişkiler Kurulu (Foreign
Economic Relations Board) without whom I would have never been able to be introduced to the Turkish
textile and apparel industry through the front door. Similar role, but for the Bulgarian textile and apparel
industry, was played by Vassil Radoinovski, Executive Director of Industrieconsult, who brought me to the
world of consultancy work and the two national strategy teams. There were several Turkish students who
took part in my research and among them I would like to point out two people, whom I made friends, Yasin
Uygur and Engin Öztürk.

I am highly indebted to Dani, who has been the closest person to me through all these years and whom I
have constantly “bothered” on issues related to textile and clothing. Krisko, Savi and Rumi have often
made my life in Budapest happier and I owe them a lot for that. I thank also Annisa Wanat for the editorial
support and her excellent job, despite of the short notice. Last but by no means least, I would like to thank
my family (Donka, Tzetz and Ilia) and also Pat and Debbie, for being always helpful, granting
unconditional support in times when I most needed.

Evgeni Evgeniev

20 October 2006
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TABLE OF CONTENTS
LIST OF TABLES viii
LIST OF FIGURES ix
LIST OF ABBREVIATIONS x
CHAPTER I. INTRODUCTION............................................................................1
1.1 SCOPE OF THE STUDY.....................................................................................................................1
1.2 COUNTRY CASES AND RESEARCH QUESTION.........................................................................2
1.3 THEORETICAL APPROACHES, MAIN CONCEPTS AND ARGUMENT.....................................4
1.4 STRUCTURE.......................................................................................................................................9
CHAPTER II. THEORY AND RESEARCH METHODOLOGY .........................11
INTRODUCTION....................................................................................................................................11
2.1 THEORETICAL BACKBONE..........................................................................................................11
2.1.1 Sectoral Analysis......................................................................................................................11
2.1.2 Global Value Chains.................................................................................................................15
2.1.3 Business Association literature.................................................................................................23
2.2 CAUSALITY.....................................................................................................................................25
2.2.1 Variables...................................................................................................................................25
2.2.2 Hypotheses................................................................................................................................33
2.3 QUALITATIVE AND QUANTITATIVE RESEARCH ANALYSIS...............................................34
2.3.1 Industrial Analysis....................................................................................................................34
2.3.2 Firm Analysis............................................................................................................................39
CONCLUSION........................................................................................................................................43
CHAPTER III. TEXTILE AND APPAREL INDUSTRY IN TURKEY.................44
INTRODUCTION....................................................................................................................................44
3.1 INITIAL CONDITIONS....................................................................................................................44
3.2 STATE POLICY IN THE POST-1983 .............................................................................................48
3.2.1 Integration into world markets.................................................................................................49
3.2.2 Exchange rate policy................................................................................................................53
3.2.3 Trade liberalization with EU....................................................................................................54
3.2.4 Foreign Direct Investment........................................................................................................58
3.2.5 Privatization.............................................................................................................................60
3.2.6 State industrial policy...............................................................................................................61
3.3 BRANCH ASSOCIATIONS..............................................................................................................68
3.4 TURKISH REALITY.........................................................................................................................73
3.4.1 Competition through informalization........................................................................................73
3.4.2 Competition through labor.......................................................................................................77
CONCLUSION........................................................................................................................................81
CHAPTER IV. INDUSTRIAL AND FIRM UPGRADING IN TURKEY..............83
INTRODUCTION....................................................................................................................................83
4.1 SECTORAL LEVEL..........................................................................................................................83
4.1.1 Low value added position in the 1980s.....................................................................................83
4.1.2 Climbing up in the 1990s..........................................................................................................87
4.1.3 Upgrading in the post-1995......................................................................................................89
4.2 NETWORK LEVEL .........................................................................................................................94
4.3 FIRM LEVEL ..................................................................................................................................102
4.3.1 Survey results..........................................................................................................................102
4.3.2 Analysis of three firm cases....................................................................................................114
CONCLUSION......................................................................................................................................126
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CHAPTER V. TEXTILE AND APPAREL INDUSTRY IN BULGARIA............128
INTRODUCTION..................................................................................................................................128
5.1 INITIAL CONDITIONS..................................................................................................................128
5.2 STATE POLICY IN THE POST-1995 ...........................................................................................139
5.2.1 Integration into world markets...............................................................................................139
5.2.2 Exchange rate policy..............................................................................................................143
5.2.3 Trade liberalization with EU..................................................................................................144
5.2.4 Foreign Direct Investment......................................................................................................146
5.2.5 Privatization...........................................................................................................................147
5.2.6 State industrial policy.............................................................................................................150
5.3 BRANCH ASSOCIATIONS............................................................................................................152
5.4 BULGARIAN REALITY.................................................................................................................155
5.4.1 Competition through informalization......................................................................................155
5.4.2 Competition through labor.....................................................................................................158
CONCLUSION......................................................................................................................................165
CHAPTER VI. INDUSTRIAL AND FIRM UPGRADING IN BULGARIA........167
INTRODUCTION..................................................................................................................................167
6.1 SECTORAL LEVEL........................................................................................................................167
6.1.1 Low value added export position in 1995...............................................................................167
6.1.2 Low value added exports in 1996 and 1998............................................................................169
6.1.3 Low value added exports in 2001...........................................................................................170
6.1.4 Low value added exports sustained in 2003...........................................................................172
6.2 NETWORK LEVEL .......................................................................................................................176
6.3 FIRM LEVEL ..................................................................................................................................183
6.3.1 Survey results..........................................................................................................................183
6.3.2 Analysis of three firm cases....................................................................................................195
CONCLUSION......................................................................................................................................210
CHAPTER VII. RESULTS FROM MULTIVARIATE ANALYSIS....................211
INTRODUCTION..................................................................................................................................211
7.1 APPLICATION OF THE MULTIVARIATE ANALYSIS.............................................................213
7.1.1 Justification for the comparison of the two samples...............................................................214
7.2 TESTED MULTIVARIATE RESULTS WITH STATISTICAL PROCESSING ..........................218
7.2.1 Inter-correlation analysis of variables...................................................................................218
7.2.2 Creation of new indexes and dummy variables.......................................................................221
7.2.3 Regression models of variables and indexes...........................................................................225
CONCLUSION......................................................................................................................................230
CHAPTER VIII. CONCLUSION.......................................................................231
INTRODUCTION..................................................................................................................................231
8.1 COMPARATIVE OVERVIEW.......................................................................................................231
8.1.1 Similar starting positions, different outcomes........................................................................231
8.2 SECTORAL ANALYSIS AND ITS REVISION ............................................................................236
8.2.1 High SSAB in Turkey..............................................................................................................238
8.2.2 Low SSAB in Bulgaria............................................................................................................242
8.3 FINAL WORDS ..............................................................................................................................244
REFERENCES..................................................................................................258
APPENDICES...................................................................................................269

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LIST OF TABLES

TABLE 1 COMPARISON OF PRE-1980 AND POST-1980 ECONOMIC POLICIES IN TURKEY...49
TABLE 2 FOREIGN-OWNED FIRMS IN THE TURKISH T/C INDUSTRY.......................................59
TABLE 3 FOREIGN INVESTMENT LICENSES IN THE TURKISH T/C INDUSTRY......................59
TABLE 4 SUBSIDIZED INVESTMENT PROJECTS IN TEXTILE : TURKEY..................................62
TABLE 5 INVESTMENT CERTIFICATES GIVEN TO THE TURKISH T/C INDUSTRY................63
TABLE 6 SIZE DISTRIBUTION IN THE TURKISH T/C INDUSTRY (2001)....................................75
TABLE 7 AVERAGE WAGES, LABOR COSTS AND EMPLOYMENT STRUCTURE IN THE
TURKISH T/C INDUSTRY (APRIL 2004, USD)..................................................................................76
TABLE 8 UNIT VALUE ANALYSIS OF EC TEXTILE AND APPAREL IMPORTS (1983).............84
TABLE 9 UNIT VALUE ANALYSIS OF EC TEXTILE AND APPAREL IMPORTS (1988).............85
TABLE 10 UNIT VALUE ANALYSIS OF EC TEXTILE AND APPAREL IMPORTS (1991)...........87
TABLE 11 UNIT VALUE ANALYSIS OF EC TEXTILE AND APPAREL IMPORTS (1995)...........88
TABLE 12 INTEGRATION OF TEXTILES AND CLOTHING INTO GATT......................................89
TABLE 13 UNIT VALUE ANALYSIS OF EC TEXTILE AND APPAREL IMPORTS (2001)...........90
TABLE 14 UNIT VALUE ANALYSIS OF EC TEXTILE AND APPAREL IMPORTS (2003)...........91
TABLE 15 STATE CAPITAL INVESTMENTS IN BULGARIA (1977-1988)...................................133
TABLE 16 FOREIGN DIRECT INVESTMENT IN BULGARIA BY SECTORS...............................147
TABLE 17 CASH PRIVATIZATION IN THE BULGARIAN T/C INDUSTRY.................................148
TABLE 18 NUMBER OF ENTERPRISES AND EMPLOYEES (1983-2003)....................................156
TABLE 19 UNIT VALUE ANALYSIS OF EC TEXTILE AND APPAREL IMPORTS (1995).........167
TABLE 20 UNIT VALUE ANALYSIS OF EC TEXTILE AND APPAREL IMPORTS (1996,1998) 169
TABLE 21 UNIT VALUE ANALYSIS OF EC TEXTILE AND APPAREL IMPORTS (2001).........171
TABLE 22 UNIT VALUE ANALYSIS OF EC TEXTILE AND APPAREL IMPORTS (2003).........172
TABLE 23 EC APPAREL TRADE WITH BULGARIA (1995/2003)..................................................174
TABLE 24 COMPARISON OF THE TWO FIRM SAMPLES.............................................................214
TABLE 25 FACTOR LOADINGS FOR THE RELATIONSHIP BETWEEN TRADE AGENTS......222
TABLE 26 FACTOR LOADINGS FOR FIRM UPGRADING............................................................223
TABLE 27 PATTERN MATRIX OF DEPENDENCY AND RANKING............................................224
TABLE 28 FIRM DEPENDENCY MATRIX.......................................................................................224
TABLE 29 FIRM RANKING MATRIX...............................................................................................225
TABLE 30 REGRESSION OF UPGRADING INDEX USED AS DEPENDENT VARIABLE..........225
TABLE 31 REGRESSION OF UPGRADING INDEX WITH CONTROL FOR SMALL FIRMS......227
TABLE 32 REGRESSION OF UPGRADING INDEX WITH CONTROL FOR LARGE FIRMS......228
TABLE 33 SEPARATE REGRESSION MODELS FOR BULGARIA AND TURKEY.....................229
viii
LIST OF FIGURES

FIGURE 1 EXPORT ROLES OF INDUSTRIAL UPGRADING...........................................................20
FIGURE 2 TURKISH TRADE IN TEXTILES WITH THE WORLD....................................................50
FIGURE 3 TURKISH TRADE IN CLOTHING WITH THE WORLD..................................................50
FIGURE 4 TOP FIVE CLOTHING MARKETS: TURKEY...................................................................51
FIGURE 5 TOP FIVE TEXTILE IMPORTERS: TURKEY...................................................................52
FIGURE 6 SECTORAL SHARE OF TURKISH EXPORTS TO THE EU MARKET...........................56
FIGURE 7 EU TEXTILE AND APPAREL IMPORTS (1983-2003): TURKEY...................................93
FIGURE 8 MAJOR EXPORT MARKETS: TURKEY.........................................................................103
FIGURE 9 DOMINANT CONTRACTS OF TURKISH FIRMS WITH FOREIGN BUYERS............106
FIGURE 10 SHARE OF TURKISH FIRMS’ TWO MOST IMPORTANT SUPPLIERS....................107
FIGURE 11 SHARE OF TURKISH FIRMS’ INVESTMENT..............................................................111
FIGURE 12 MARKETING AND DESIGN DEPARTMENTS IN TURKISH FIRMS........................112
FIGURE 13 BULGARIAN TRADE IN TEXTILES WITH THE WORLD..........................................140
FIGURE 14 BULGARIAN TRADE IN CLOTHING WITH THE WORLD........................................140
FIGURE 15 TOP FIVE EXPORT MARKETS: BULGARIA...............................................................141
FIGURE 16 TOP FIVE TEXTILE IMPORTERS: BULGARIA...........................................................141
FIGURE 17 SECTORAL SHARE OF BULGARIAN EXPORTS TO THE EU MARKET.................144
FIGURE 18 EU TEXTILE AND APPAREL IMPORTS (1995-2003): BULGARIA...........................174
FIGURE 19 MAJOR EXPORT MARKETS: BULGARIA...................................................................184
FIGURE 20 DOMINANT CONTRACTS OF BULGARIAN FIRMS WITH FOREIGN BUYERS....185
FIGURE 21 SHARE OF BULGARIAN FIRMS’ TWO MOST IMPORTANT SUPPLIERS..............186
FIGURE 22 SHARE OF BULGARIAN FIRMS’ INVESTMENT.......................................................190
FIGURE 23 MARKETING AND DESIGN DEPARTMENTS IN BULGARIAN FIRMS..................192
FIGURE 24 CONCEPTUAL FRAMEWORK FOR FIRM UPGRADING...........................................211

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LIST OF ABBREVIATIONS

AATEB ASSOCIATION OF APPAREL AND TEXTILE EXPORTERS IN BULGARIA
ATC AGREEMENT ON TEXTILE AND CLOTHING
BA BRANCH ASSOCIATION
BAATPE BULGARIAN ASSOCIATION OF APPAREL AND TEXTILE PRODUCERS AND EXPORTERS
BAKI BRANCH ASSOCIATION OF THE KNITTING INDUSTRY
BCCI BULGARIAN CHAMBER OF THE CLOTHING INDUSTRY
CAD COMPUTER-AIDED-DESIGN
CAM COMPUTER-AIDED-MANUFACTURING
CBA CURRENCY BOARD ARRANGEMENT
CEE CENTRAL AND EASTERN EUROPE
CMT CUT-MAKE-TRIM
CRI COMPETITIVENESS RESEARCH INSTITUTE
CMEA COUNCIL OF MUTUAL ECONOMIC ASSISTANCE
CUD CUSTOMS UNION DECISION
DEIK FOREIGN ECONOMIC RELATIONS BOARD
EBRD EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT
EURATEX ASSOCIATION OF THE EUROPEAN TEXTILE AND APPAREL INDUSTRY
EUROSTAT STATISTICAL DIVISION OF THE EUROPEAN UNION
FDI FOREIGN DIRECT INVESTMENT
FTA FREE TRADE AGREEMENT
FTZ FREE TRADE ZONE
GATT GENERAL AGREEMENT ON TARIFFS AND TRADE
GDP GROSS DOMESTIC PRODUCT
GFI GREEN FIELD INVESTMENT
GTZ GESSELSCHAFT FÜR TECHNISCHE ZUSAMMENARBEIT
GVC GLOBAL VALUE CHAIN
IAF INTERNATIONAL APPAREL FEDERATION
IMF INTERNATIONAL MONETARY FUND
ISI IMPORT-SUBSTITUTION INDUSTRIALIZATION POLICY
ITKIB ISTANBUL TEXTILE AND CLOTHING EXPORTER’S ASSOCIATION
JV JOINT VENTURE
MBO MANAGEMENT-BUY-OUT
MFA MULTI-FIBER ARRANGEMENT
NEM NEW ECONOMIC MECHANISM
NSI NATIONAL STATISTICAL INSTITUTE
OBM ORIGINAL BRAND-NAME MANUFACTURING
OEM ORIGINAL EQUIPMENT MANUFACTURING
ODM ORIGINAL DESIGN MANUFACTURING
OPT OUTWARD-PROCESSING-TRAFFIC REGIME
R&D RESEARCH AND DEVELOPMENT
SA SECTORAL ANALYSIS
SIA STATE INDUSTRIAL ASSOCIATION
SMEs SMALL-AND-MEDIUM-SIZED ENTERPRISES
SOEs STATE-OWNED-ENTERPRISES
SPO STATE PLANNING ORGANIZATION
SSAP STABILIZATION AND STRUCTURAL ADJUSTMENT PROGRAM
TCMA TURKISH CLOTHING MANUFACTURER’S ASSOCIATION
TEKSIF ISTANBUL TEXTILE WORKERS’ UNION
TTEA TURKISH TEXTILE EMPLOYERS’ ASSOCIATION
TURK-IS ISTANBUL LABOR UNION OF TEXTILE WORKERS
WB WORLD BANK
WTO WORLD TRADE ORGANIZATION
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