TBY talks to Saffet Karpat, Vice-President of the Central and Eastern Europe, Middle East, and Africa Region and Chairman of Procter & Gamble Turkey, on domestic demand, Turkey as a manufacturing base, and branding strategies.
TBY Domestic demand is driving the economy. How would you assess retail demand locally, and how important is Turkey for Procter & Gamble’s operations globally?
SAFFET KARPAT Turkey has been growing consistently for the last decade, and growth has also been good in the categories in which P&G competes, such as household cleaning and beauty products like detergents, diapers, paper towels, and so forth. The oral care sector has a lot of room to expand in Turkey, which is even less developed than in Kazakhstan. The beauty sector is very dynamic because it’s also underdeveloped in Turkey compared to developed countries. We benchmark BRIC countries, and Turkey usually comes in just after these four countries. Turkey is the 16th largest economy in the world and it is growing fast, so it’s the focus of attention for a lot of companies and investors. Naturally it’s also one of the top markets for Procter & Gamble. Our markets and portfolio offerings have grown consistently since 2001. When you look at the Turkish economy in general, growth has been in the single digits for the last three or four years, but it’s still one of the fastest growing countries in the world. The population is young and growing, with an expanding labor force. GDP is also growing, and there are around 200,000 new households a year. Investments are also strong, with most major multinationals now operating in Turkey, including Procter & Gamble. We have our own production facilities here too from which we not only supply local demand, but also demand from the countries around us in the region—and we even export to Europe. When you look at all those factors, you can understand why Procter & Gamble is in Turkey. We are committed to portfolio expansion here, and have been in the country for 15 years. Things look positive for the future.
You have your own manufacturing unit here in Turkey, and people often talk about the advantages of producing and manufacturing goods here. How would you rate Turkey as a production base?
When you look at regional countries, Turkey is the biggest market alongside Russia. However, Turkey has to be careful about cost competitiveness. This country is not the cheapest in terms of cost. Turkish labor costs have become quite high, especially in developed areas like Istanbul and Izmir. Secondly, there are a lot of indirect taxes on production, especially on electricity, fuel, communications, transport, and so on. These factors increase production costs, too. Yes, Turkey is a big and important market, but P&G Turkey’s cost structure isn’t the most competitive over other countries. Countries like Romania, Bulgaria, Ukraine, and even Egypt have an advantage in that sense. Another important factor is education and training. We have very good universities, but we need better technicians and technical schools. University education is very important, but technical education is also crucial. There are sectors in which Turkey has excelled in creating a well-trained labor force like in the automotive industry in areas like Bursa. However, we need better, expert, qualified labor in all fields. Turkey will never be as cheap as certain other countries, but we can make up for that disadvantage by having better and more qualified technicians and a more educated and well-trained labor force. The unregistered economy is also an issue. Turkey has to focus on the equality of taxes, and there must be a base for equal treatment in that regard. Today, registered companies pay taxes, leaving half of the economy exempt. These companies need to be offered incentives to register, and begin a process of investing in people.
In terms of the beauty segment, what brands and products perform well?
Certain categories of beauty products are very developed, like say, shampoos and hair care products. Procter & Gamble's Pantene Head & Shoulders, for example, was launched a few years ago and it has become very successful. Hair dyes also do well, not just for older people but also younger people. Facial products are also doing well, such as soaps, skin creams, gels, liquids, and the like.
Brand management has been one of the hallmarks of Procter & Gamble’s success. Can you tell us more about that?
Brand management has been at the core of our business since the 1960s. It is Procter & Gamble’s job to create global brands. The company has one of the biggest portfolios globally, and as a mass marketer, Procter & Gamble’s philosophy is to offer high-quality global brands at a reasonable cost. Approximately 95% of households in Turkey contain at least one Procter & Gamble brand. Procter & Gamble’s sales totaled about $80 billion in 2010. The company has 24 “billion-dollar brands”, meaning a brand that exceeds $1 billion in sales annually. Those brands are part of a group of 50 leadership brands that are among the world’s best known household names. These 50 brands make up 90% of P&G’s sales. This is a good display of Procter & Gamble’s focus—to create global brands. We want to market all of these global brands here in Turkey, and the last three big entries we made were for Olay, Head & Shoulders, and Fairy.
How do you make sure your brands aren’t competing against each other?
We target consumers based on their needs. For example, Ariel is the best detergent on the market with the latest technology and it appeals to those consumers who want to spend a little more to have the best stain remover around. On the other hand, our Alo brand is cheaper and appeals to a different type of consumer. We find the best solution is to develop and market brands that appeal to particular consumer needs.
How significant are Procter & Gamble’s corporate social responsibility projects?
In line with our global “Live, Learn and Thrive” project, we contribute to the society in which we live and work, with a particular focus on children and education. Our social responsibility projects are a mutual part of P&G’s sustainability approach to touch and improve lives for today and generations to come. To give you an example, we’ve been educating young girls on how to deal with feminine hygiene, how to use certain products, how to take care of their bodies, how to lead healthy lives, and share then their knowledge and experience. We’ve reached over 12 million teenagers in the last 17 years. Also, for the last seven years we’ve worked with Migros on the Special Olympics to build up capability and self-confidence through sports, reaching 4,000 handicapped sportsmen and women. Within our flagship project, “Dream to Reality”, in cooperation with Darüşşafaka, we have reached over 10,000 students in one year through projects in science, photography, and music. We also worked on the tetanus vaccination campaign with UNICEF on a worldwide scale, and also in Turkey, where 100 million vaccines have been provided. We also address disasters like the recent tragedy in Japan and elsewhere. We’re very active.
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