Wall Street Journal
Boat Builders Help Transform
Turkey Into a Regional Star
Tom Perkins's Mega-Yacht
Shows Unexpected Skill
Of Manufacturing Sector
Stable Anchor of Middle East
By PHILIP SHISHKIN
September 14, 2006; Page A1
TUZLA, Turkey -- On a recent day this summer, an $80 million clipper called the Maltese Falcon left the Turkish shipyard of its birth and zoomed up the Bosporus, showing up rickety tourist boats and grimy cargo ships.
Three enormous carbon-fiber masts towered over the 88-meter yacht, which belongs to Silicon Valley financier Thomas Perkins (and which played a cameo role in the boardroom drama roiling Hewlett-Packard Co.) From a touch-pad console on the bridge, the captain can rotate the masts and unfurl the sails embedded inside, a technological first.
Made entirely in Turkey, the Maltese Falcon is the most visible sign of a boat-building boom that has turned this once-sleepy town on the Marmara Sea into a bustling industrial hub in just over a decade. Not so long ago, the idea of using Turkey to build a boat as sophisticated as the Maltese Falcon would have sounded like "building a Ferrari in Afghanistan," jokes Baki Gökbayrak, the Turkish naval architect who supervised the project.
Things have changed so quickly that Ted Hood, a renowned yachtsman who won the 1974 America's Cup, calls Turkey "a secret boat-building area of the world" and has invested in a shipyard in Tuzla. Bernie Ecclestone, the Formula-1 tycoon, has had two yachts built here, while several marquee Western boat-makers have struck partnerships with Turkish shipyards.
The emergence of a yacht-building center underscores a broader economic trend in Turkey: the development of specialized manufacturing sectors that are creating growth and employment at home and giving the country a growing niche in the global marketplace. Some companies are beginning to focus on sophisticated engineering skills instead of relying solely on a cheap work force to win business from more expensive labor markets of the West. Manufacturing and service sectors have surpassed agriculture as the biggest contributors to gross domestic product, a broad measure of an economy's size.
Turkey's economic resurgence is helping underpin stability in this strategically located country bordering the stagnating economies of Iraq, Iran and Syria. A mostly Muslim country of 70 million people, Turkey is enjoying the longest period of economic expansion in its history. Bolstered by banking and fiscal overhauls implemented after a 2001 financial meltdown, the country's GDP has been rising at an average 7.5% annual pace for the past four years.
That record may be tested this year. Inflationary pressures have forced the government to raise interest rates, which will slow lending. An investor pullback from emerging markets sent the Turkish currency, the lira, plunging roughly 25% this spring and summer, though it has subsequently rebounded somewhat. And uncertainty about Turkey's prospects for entering the European Union, as well as growing violence by Kurdish ethnic separatists, could further limit growth. Tuesday, a homemade bomb exploded in a predominantly Kurdish city in the southeast, killing 10 people.
Still, many economists expect Turkey's increasingly competitive manufacturing base to keep the momentum going. Manufacturing clusters akin to Tuzla's yacht-building enclave have sprung up across the country, sometimes in unexpected places.
Turkish construction companies, which trace their origins to massive public-works projects in the 1960s and '70s, are building shopping malls and apartment complexes in Eastern Europe and Central Asia. Turkish gold merchants and artisans, centered in Istanbul, now are second only to Italy in global gold-jewelry exports, and that gap is closing, according to the World Gold Council.
A vibrant group of furniture and denim makers has emerged deep in the Anatolian countryside, in Turkey's geographic center. They are sometimes referred to as "Anatolian tigers" because their rapid growth and export reach resembles the growth of the "Asian Tiger" economies of Taiwan, Thailand, Singapore and Malaysia in the 1980s and 1990s. In 2005, the Turkish automotive sector, which includes a Ford Motor Co. joint venture, logged a record year with 900,000 vehicles assembled. Nearly half were exported.
All of these clusters have spawned subcontractors and suppliers around them, drawing on Turkey's long history of small and midsize business and creating more employment. "This has been a very important stage where you have big industries supporting a smaller network feeding into them," says Standard Bank economist Mina Toksoz.
The forces that have shaped the Turkish yacht-building industry help explain the resurgence of Turkey's economy. Tuzla already has turned Turkey into a competitor on the high-end boat market, although most luxury yachts still are built in Italy, the Netherlands and Germany. Around its marina, shipyards are stacked so tight next to each other that a half-finished hull of one boat almost pushes out onto a highway into town.
Mr. Gökbayrak, the naval architect who worked on the Maltese Falcon, was among the early entrants. In the late 1980s, Mr. Gökbayrak, fresh from a long career building warships in the Turkish navy, decided to go into business for himself. At the time, Perini Navi, a boutique Italian yacht maker, was looking for a low-cost location to build hulls, the simplest part of yacht construction. Mr. Gökbayrak, who had studied at the Naval Postgraduate School in Monterey, Calif., on a Turkish military scholarship, teamed up with Perini and started running the Italian firm's shipyard in Tuzla.
Since there was no experienced manual labor around, Mr. Gökbayrak hired 30 carpenters. He figured that with the right training, their wood-cutting experience could be adapted to aluminum, the main hull component. For much of the 1990s, Perini's Turkish shipyard cranked out mostly "naked hulls" that would be shipped to Italy for high-end work. In the late 1990s, as the Turkish work force matured, Perini started transferring more work to Tuzla from Italy. First it was the fitting of pipes, cables and insulation. Then came the installation of partitions and living quarters for the crew.
By that time, Tuzla's yacht-building scene was slowly expanding, buoyed by a combination of solid engineering skills and labor costs that are lower than in Western Europe. In 1993, a new Tuzla company called Proteksan Turquoise Yachts Inc. built a 50-meter motorboat, its first project, and sold it to an American client. Years later, Proteksan built two yachts for Mr. Ecclestone, the Formula-1 entrepreneur.
Many of the naval architects here attended Istanbul Technical University, the same elite school that had trained much of the engineering talent behind the country's other successful industries, including construction and cars. Founded in 1773, in the heyday of the Ottoman Empire, the university first focused on training chart masters and shipbuilders for the imperial fleet, adding other specialties later.
An Istanbul Tech graduate named Ekber Onuk teamed up with a friend as early as 1985 to start a boat business. "I didn't know anything about boats," recalls Mr. Onuk, who has a degree in aeronautical engineering. When a Turkish client inquired about importing a new yacht from Italy, Mr. Onuk instead built him a 30-meter motorboat in Turkey and delivered it in 1992.
Mr. Onuk's son Kaan, then only 16, started sketching prototypes of fast patrol boats that he wanted to market to the Turkish coast guard. In 1996, just as the Turkish military was about to open bidding for a new boat contract, Kaan died in a car accident. Mr. Onuk's friend and partner Bakir Yilmazturk encouraged him not to give up: "Let's go and build your son's boat," he told him. They won that tender and many others to follow, and the Turkish navy now officially classifies its patrol craft as "Kaan Class."
Mr. Onuk's company, Yonca-Onuk, has built two fast-patrol boats for the Pakistani navy. He says he is in negotiations with navies from four other countries. The mold where his workers make hulls is so busy that he says he recently turned down an order from a Russian businessman. Mr. Onuk now is working on a series of luxury motorboats in a marketing partnership with Heesen Yachts, a leading Dutch firm. The first civilian boat, named Hot Chocolate and painted brown and white, was just finished in Tuzla and already has a buyer.
Just down the street from Mr. Onuk, Mr. Gökbayrak of Perini Navi had whipped his Turkish shipyard into shape by early 2001. They then were ready for far more than simple hull work.
At that time, Mr. Perkins -- whose venture-capital firm, Kleiner Perkins Caufield & Byers, has financed companies including Google Inc., America Online Inc. and Amazon.com Inc. -- was about to embark on a massive seafaring project. A sailing aficionado, Mr. Perkins is a devotee of the novels of Patrick O'Brian ("Master and Commander") and once wrote an article for a yachting magazine about hosting the author on a deluxe cruise. Now, Mr. Perkins wanted to build a clipper, a class of fast wind-powered boats that fell into oblivion with the advent of steamships in the late 19th century.
Mr. Perkins and Dutch naval architect Gerard Dijkstra hit upon a 1960s concept developed by German engineer Wilhelm Prolls. His idea was to use hydraulic motors to align masts, yards and sails in a way that would let the boat get the most out of any wind -- without a large crew manning the rigs. The concept seemed promising, especially with an oil crisis in the 1970s heightening fears that global shipping may have to find new ways to use wind power. But composite materials needed to withstand high stress weren't available then. The oil crisis passed, and the concept was shelved.
Reviving it would be experimental, and expensive. When Perini engineers offered to build the boat in Turkey to save money, Mr. Perkins says he readily agreed. In September 2002, after several scale models and painstaking design work, construction began. It involved Dutch naval architects, Japanese carbon-fiber suppliers, British sail makers, German interior designers -- and plenty of Turkish craftsmen and engineers.
The expansion of the boat-building business has drastically changed Tuzla itself, mirroring the broader transformation of the Turkish economy and demographics. A little more than two decades ago, this was a fishing and farming town of 50,000 people outside Istanbul. It has since sprouted about 40 shipyards, swelling the population to 150,000 and providing employment to 30,000 workers, many of them migrants from the Turkish agricultural heartland. Using some of the tax revenue, Mayor Mehmet Demirci wants to fix up the town and has plans to reconnect a dried-out lagoon to the Marmara Sea and upgrade the local sewage-treatment plant, which hasn't kept up with the ballooning population.
The Maltese Falcon's construction was a huge challenge. Turkish workers had to build custom furnaces to bake carbon fiber and mold it into masts. Turkish interior decorators fashioned crew quarters and laid wooden boards interspersed with aluminum on the deck. During the labor-intensive construction, Mr. Perkins sometimes had 30 Turks working in two shifts, including weekends. "In Italy, nobody will work over the weekend," he says, referring to Europe's rigid labor laws. Had he chosen to build in Europe, he adds, "the cost would have been a lot higher, and it wouldn't be as perfect."
Mr. Perkins asked his longtime sailing captain Chris Gartner to act as his representative in Tuzla, keeping track of the Falcon's progress. Eventually, Mr. Perkins had part of his modern-art collection installed inside the yacht, including a sculpture built from a cross-section of a tree on one of his estates.
The final days before the maiden voyage were particularly busy, as the Falcon crew raced to comply with myriad certification requirements and install last-minute fixtures. Mr. Gartner says he slept a total of seven hours in the three days before the boat left the shipyard in late June. (At the same time the construction saga was playing out, Mr. Perkins, then a director at Hewlett-Packard, was battling with H-P Chairman Patricia Dunn over her investigation of leaks to the media. According to people familiar with the matter, Mr. Perkins rescinded an invitation to Ms. Dunn to attend the Falcon's launching.)
Emboldened by the Maltese Falcon, Perini Navi now plans to build all megayachts in Turkey, using Italy to build smaller boats.
Alongside the shipyards, Tuzla has developed a vast network of subcontractors and suppliers. Hasan Ulutas, an architect by training, started an interior-design business geared exclusively to high-end yachts.
Mr. Perkins tapped him to build crew quarters, the galley, the bridge and a deck table based on a design by yacht decorator Ken Freivokh. Fashioned out of glass, carbon fiber and honeycombed aluminum embedded in the glass top, the table is among Mr. Perkins's favorite features of the Maltese Falcon. "This is Turkish workmanship," he said. "This piece should be in an art museum."
Write to Philip Shishkin at firstname.lastname@example.org
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