Companies without factories

Capital studied the advantages and disadvantages of a company not having any factories.

1.09.2011 00:00:000
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Companies without factories

There are hundreds of companies without factories all over the world. Turkish companies are following the global trend initiated by world giants such as Nike and Apple. They also include those who have closed down their own factories and shifted to this production model. Many Turkish brands, such as Koton, Arzum, Kiğılı, Emsan, Blue House, Homend and Twigy, have outsourced all of their production to subcontractors in Turkey or abroad.

In recent years we have seen that companies in Turkey, particularly in clothing, small household appliances and the electronics sector, have been abandoning their factories and outsourcing their production. Every story of a company without factories is different. For example, Koton is one of the most important representatives of this model. Koton Board Chair Yılmaz Yılmaz says: "We shifted to factoryless production at the moment that our production capacity could no longer meet our developing retail operations." Adil Işık Board Vice Chair and Design  Director Zehra Işık says the following: "When our company was established, all of the firms in the Turkish clothing sector were producing in their own factories. We studied the organizational structures of international brands. We saw that what they focused on was brand management, design, marketing and sales main processes. We opted for this model." The Tarman Group, whose Blue House brand has made it one of the most important players in small household appliances, also has no factories. Blue House Deputy General Manager Mete M. Gedikoğlu says that they shifted to this production model in 2006 and adds: "We chose this path in order both to reduce the procurement period and to be able to make the best use of any surplus customer cheques we were holding."
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One of the most important reasons for companies closing down their factories and transferring production to others is the desire to avoid high costs. Dr. Cüneyt Evirgen from Sabancı University says that the most important reason is the cost advantage. Evirgen continues as follows: "This method enables companies to avoid fixed investment costs, amortization, general outgoings and human resources costs. Production losses do not appear as costs. They acquire different tax advantages which vary according to where the production takes place." Kiğılı CEO Hilal Suerdem lists the advantages of having no factories as follows: "Personnel costs and some general expenditure items are completely removed. It becomes easier to determine profitability. This secures an advantage of 30 percent."


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