Kordsa Global is a true Turkish industrial success story, operating nine businesses in seven countries across five continents, and employing approximately 4,000 people. It serves the rubber, composite, and construction markets by providing reinforcing products, and is the world’s number one in nylon 6.6 and number two in polyester industrial fiber tire cord. Kordsa Global’s CEO Cenk Alper explains how the company is pioneering ‘reinforcement solutions’ that are revolutionizing its industry on a continual basis.
How has the Turquality program helped you to reach a position where most other Turkish industrial companies want to be, since Kordsa is very much a global brand across five continents, and a market-leader in many of the product segments you have?
As Kordsa, we benefit from two types of program. R&D support and the Turquality program.
The new R&D law introduced in 2007 supports certified R&D Centers for research and product development. At Kordsa Global, we have been a certified R&D Center by the Ministry of Science, Industry and Technology since 2008, and ranked as one of the top performers.
Also we get technology project support from Tubitak Teydep. With the help of these incentives you can decrease your R&D spend by around 35%. Of course you have to have ideas and projects to benefit from these.
Once your products are in place, Turquality comes into play to support your marketing efforts. Turquality supports patent applications, fairs, even the sales offices abroad. Also the program provides a very structural roadmap to improve your marketing activities.
We are also increasing our patent portfolio every other year. A short while ago, the Ministry of Science, Industry and Technology, and the Turkish Patent Institute announced the top 10 companies who applied for the most number of domestic patents for the period January-June of 2015. We are in sixth position. Being a B2B company in a very conservative industry, this is a great success. I can proudly say that the innovations that we have come up with so far are revolutionary for our industry. Nylon was invented in the 1940s. Now, 70 years later, we are bringing really breakthrough technologies into the industry.
Can you elaborate on how you turning these breakthrough ideas into innovative products that you can sell around the world?
It starts with understanding your customers. At Kordsa Global, we have strong relations with probably all tire manufacturers in the world. We are a global leader, number one in nylon 6.6 and number two in polyester. We have a strong marketing and sales team, and a technology team, continuously searching the needs of our customers. Once you identify their needs, you have to translate them into innovative ideas.
For us, innovation starts with identifying the needs of your customers by listening to them better. Once you have that, we have many researchers and engineers in the company to come up with bright ideas. Once the ideas are there, we can get financial and expertise support in our innovation network to turn them into reality.
With our pilot production facilities, we can develop products without interfering with day-to-day production. The strong pilot production and testing infrastructure allows us to come up with innovative products.
If you look at the pace of innovation at Kordsa Global, you will see that every year, at least one or two breakthrough products are coming into market. We are keeping our innovation funnel always full. Ideas are moving from the ideation phase to concept formation, to prototyping and finally to industrialization.
How is your product range diversifying beyond the tire industry as a result of your R&D?
Three years ago, we completed an extensive strategy study in which we asked ourselves two critical questions. How can Kordsa be more successful in its existing business? How can Kordsa grow beyond its existing business by leveraging its existing competencies?
For each of these questions, we have come up with a strategic roadmap. For the second question, we have identified two adjacent areas: construction reinforcement and composite reinforcement, after searching through the complete technical textiles landscape. These two areas have high growth potential and high technology content.
After identifying these markets, we have assessed our existing competencies, whether we can play in these markets or not. We saw that there are many competency overlaps and opportunities for us. After two years of continuous market and technology research, now we have products for our construction business and we are building a new Composite Technology Excellence Center for our composite business. We are also actively looking for companies to acquire so that we can speed up our growth in these new businesses.
Where do you see the most potential in terms of demand for your products geographically, and also for opening new international facilities?
The tire industry is shifting to Asia as a whole. A couple of years ago, China became the world’s biggest automotive producer, so there is continuous growth in that region.
Therefore, we are also investing in Asia-Pacific. We have recently opened our second plant in Indonesia. If you look at our five-year plan, we will continue to invest in Asia. Along with that we can also make some debottlenecking investment in the rest of the world for our tire business.
For the composite business, target markets are the US and Europe, and we may come up with acquisitions in these regions. Meanwhile, we are investing in TechnoPark Istanbul for our Composite Technologies Excellence Center.
Kordsa Global’s tire cord production in process
How will your Composite Technologies Centre of Excellence support your ambitions when it opens in 2016?
The Composite Technologies Center of Excellence is a unique eco-system where university, R&D and the production of composites are under the same roof. We believe that we will be able to connect customers’ needs and high-level university research, and increase the speed of innovation for composites industry.
You have won awards for your people management, not only in terms of attracting talent but also in retaining it and helping it to excel. What is innovative about your approach to people management here at Kordsa?
We are a global company originating from an emerging country. If you look into the countries where we have operations, almost 80% of them are also emerging countries. So first of all, we are a role model for them. People see that a company from an emerging country can become a global company. That is one of the first reasons that attract people. They like working with us. We are one of them, we are working together, and we are experimenting together.
We have a set of values that we believe in by heart. It starts with safety, health and environment, which means protecting our people first. We start every meeting by reviewing our safety performance. Then we have a strong ethics code. Customer-focused, open-minded, and results-driven global collaboration and continuous improvement are our other values.
Everybody in the company knows these values, and lives them every day. I think this is the most important thing for our success.
On the other hand, we try to simplify our communication, our processes, and the way we do business. We link all our efforts to our Strategy House. If you communicate well, improve clarity and respect and recognize people, then they want to stay with us.
For example, we have recently introduced an instant communication application, Whoop; it is like the Facebook of an enterprise. That improved our communication, taking it into another level. People can now follow me instantly, and better understand our strategy and our business.
Kordsa Global shares recently entered the BIST 100 index, which should give you greater visibility. However, this has happened at a time when the trading volume of foreign investors in Borsa Istanbul has fallen to its lowest level in 17 months, due to the political uncertainty. What makes Kordsa Global shares an attractive proposition for international investors, despite the turbulences affecting the country?
We have actually completed the share sales process, to increase our trading volume on the Istanbul Stock Exchange and to reach the correct enterprise value. Being a B2B company, people do not know our story very well. I have seen more than 100 investors around the world, and I have explained our story to them again and again. Once they have heard our story, they are convinced that Kordsa has a successful business case. They see that we have growth potential; and we are a strong dividend payout company.
Generally, emerging markets have either exporting companies or local companies. But with our technology and our global presence, we have a differentiated business model.
Moreover, all our sales are in hard currencies, but costs are 40% in emerging market currencies. So at the moment we are in very good shape. Kordsa, being a global company that has three different business units plus the balance between hard and emerging currencies, is a sustainable growth company.
Do you expect another record year for sales in 2015?
No, because the price of the raw materials is going down. So in terms of top-line numbers, we do not expect a record. But in terms of bottom-line numbers, profitability, we are improving continuously.
This company is focused on reinforcement solutions. What single piece of advice would you give G20 leaders on how to ‘reinforce’ the global economy at this time?
Every other year, there is a crisis somewhere in the world. Countries try to help their local companies by increasing import/export barriers, by incentivizing them, etc. But I believe that, in the long run, whether you are protected or not, if you want to sustain your business, if you want to be healthy, you have to be competitive.
And for us, competitiveness has two dimensions. The first one is the Red Ocean thinking. In today’s world, you should always have cost and quality competitiveness. Lower costs and better quality is the key in any industrial sector. The second is the Blue Ocean thinking. You have to create additional value for your customers so that you can create and extract more value.
The difference between the costs and the value you have created is the value to your shareholders. It is basically creating additional value for your customers, and then capturing part of that value.
In today’s economy, everything will be copied by followers within a couple of years. So the pace of innovation is extremely important. We are not checking whether we have a new product or not. What we are checking is whether our innovation engine is continuously working or not. You can come up with a brilliant product once, but after three years if you cannot innovate again, then you are finished. The innovation engine has to run continuously.
This kind of innovation obviously does not come from nothing; it needs inspired leadership. What makes you different from other CEOs and executives in Turkey?
Three very simple points: First of all, my former bosses have allowed me to have international experience. I have worked three years in Europe and two years in the US, which has given me global exposure so that I can manage a global company. You have to understand different cultures, the way people think, etc.
Secondly, I am an energetic person. I energize people. There is a simple rule: you have to give people a vision, and help them get there. You have to energize people, and you have to do it with better and better communication.
The third one is innovative thinking and challenging people. You have to continuously challenge people to think out of the box, to come up with new ideas. It is not just technology, it is not just marketing, and we have come up with innovative solutions even in our legal contracts. I push people hard on this one.
For example, we used to have 1km-long dipping lines for the fabric production. The fabric gets dipped into a solution, then dried and stretched. I asked if we needed 1km, I told the employees to find a technology that allows us to perform these functions in a shorter way. Our engineers have investigated alternative industries and found out brilliant technologies that can be implemented in our industry. At the end of this year, we will have our first mini-dip line that will only be 200m. For years, people were saying, ‘This is a technology, we cannot change.’ But if you consistently ask the same question to them, people will always find a better way.
In November Turkey will hold its second election in a year. When there is finally a new government in place, what steps do you think they need to take to ‘reinforce’ the country and help recover the momentum needed to reach the ambitious 2023 goals?
We have successfully managed many critical crises in our country over the last century: political, economic and geographical. That is the power of the Turkish people, because we are very courageous, hardworking, out-of-the-box thinkers. With all these aspects of the Turkish people, I believe that this is a transition period right now.
Economic dynamism, qualified human resources and its profile as an international hub are amongst the attractions that the Turkish business environment presents. Turkey is home to 150 companies from the Fortune 500 list. Turkey’s new and advanced infrastructure in transportation, telecommunications and energy provides logistical advantages for a potential industrial boom. Turkey is in the position to provide significant opportunities for industrialists, thanks to its geographic position where Europe, the Middle East and Central Asia connect.
In this developing environment, as Kordsa Global, we have proved to be a resilient company in the past 42 years. The Turkish economy has proved to be very strong over the past decade. Turkey has been one of the fastest growing economies in the region, and has gone from being a low-income to a middle-income country. This was a consequence of the average 5% annual growth in the last decade, even if the growth has slowed down in the last couple of years. From this moment on we have to concentrate on creating higher value through innovation and technology to get out of the middle-income trap. I believe that right now, all Turkish institutions, including the government, the private sector and non-profit organizations, are thinking about how to get to the next step in order to reach the 2023 goals.
Turkey is aiming for $500 billion of exports by 2023. TIM recently released a report showing there had been a decrease in the first six months of the year. How do you assess the progress towards this hugely ambitious target?
Lower oil and raw material prices are among the main factors for lower export numbers. Our revenues are decreasing. However, we are maintaining our profitability and continue to contribute to the economy.
The Turkish government and companies are working on innovation and creating higher value-added products. Turkish governments have started to support companies through two new incentive mechanisms.
First, there is the regional incentive program to attract investment. Even in our industry, we have seen that two of our customers (global tire companies) are investing in Central Anatolia to benefit from the regional incentive program. This is a great way to attract foreign direct investment (FDI) into the country.
The target of increasing the local content, particularly in higher value-added product segments, is the second incentive program, in which Turkey has announced strategic investment support. We are also benefitting from that. Around 40% of our investment for the Composite Technologies Center of Excellence is incentivized by the Turkish government. These are very positive developments to create an investment environment in Turkey.