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CRISIS MANAGEMENT IN TURKISH AUTOMOTIVE

INDUSTRY

 

Aslı SUDER, Ahmet ÇAKMAK

Istanbul Technical University, Faculty of Management

 

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ÖZET Günümüzdeki koşullarda, şirketlerin krizleri fırsat veya tehdit olarak algılamaları kriz yönetimi ile ilgili faaliyetlerini etkilediği görülmektedir. Kriz yönetiminde birinci derecede önem verilmesi gereken planlama faktörüdür. Planlama, kriz yönetimi faaliyetlerinin temelini oluşturmaktadır. İleriye dönük olarak düşünüldüğünde, krizin örgüt için tehdit olarak algılanması planlama faaliyetleri ile ilgilenme isteğini arttırmaktadır. Çeşitli potansiyel krizleri tanımlayabilen örgütlerin ve planlama faaliyetlerini başlatabilenlerin olası en kötü kriz için de hazırlık yaptıkları bilinmektedir. Bu tür hazırlıkların büyüklüğü, örgütün belirli kriz durumlarından zarar görme olasılığı ve her olası potansiyel durumdan etkilenmesi arasında doğrudan bağlantı bulunmaktadır. Potansiyel krizden daha tehdit edici olan şirketin çekirdek yapısına bulunan rekabet etme gücüdür. Bu yüzden,  oluşabilecek önemli kriz durumları için planlama çalışmasında bulunmalıdır. Böylece değerlendirme yapılırken, erken planlama safhalarında, krizin oluşturduğu çeşitli fırsat bileşenlerini değerlendirmeden önce, krizin tehdit eden taraflarını dikkate almalıdır. Değişik önemli durumları fark etmek ve bu durumlara göre plan yapmak şirketi bütün olarak etkileyecek tehditlerden koruyacaktır. Bütün bunlara rağmen bu şekilde bir bakış açısı olası fırsatların getireceği sonuçları gözönüne almadan gerçekleştirilememektedir. İki taraflı bir bakış açısı olarak düşünebileceğimiz bu durum, panik yapma eğilimini azaltmakta, aynı zamanda tehditler üzerinde yoğunlaşma şirket için faydalı olmaktadır. Türkiye gelişmekte olan bir ülke olduğundan krizler kısa süre aralıklarla oluşmaktadır. Belirsizlikler ve sürprizler kriz dönemlerinde yüksektir. Risk yönetimi ve likit durumu çok önem taşımaktadır. Talep, iç pazarda azalmış ve kriz yönetimi için alınan önlemler ihracat için büyük fırsatlar yaratmıştır. Yöneticiler ihracat merkezli projelere öncelik vermeye çalışmışlardır. Dış pazarlardan daha fazla gelir elde ederek faaliyetlerini bu pazarlarda sürdürmek için çaba harcamaktadırlar. En önemli kararlar artan verimlilik ve azalan harcamalardır. Pazarda daha çok rekabet edebilmeye, şirketin imajını korumaya ve pazardaki değerini kaybetmemeye gayret sarfetmektedirler. Daralan talep yüzünden otomotiv endüstrisi yöneticileri haftalık izinler vererek, hiçbir ödeme yapmadan çalışanlarını kaybetmemeye çalışmaktadırlar. Otomotiv endüstrisinde üretim yapanlar 1994 krizinden ders almışlardır ve 2001-2002 krizi ile mücadele ederken daha başarılı olmuşlardır. İhracat Türk otomotiv endüstrisinin geleceğinde büyük önem taşımaktadır. Türkiye'deki iş hayatındaki ekonomik, teknolojik, psiko-sosyal ve ekolojik çevreler giderek karmaşık, baskı yapan ve tehlike oluşturan durumlar arzetmektedir. Bu tür çevreler örgütlerde oluşan krizleri besleyen zeminleri oluştururlar. Böylece  örgütlerdeki stratejistler daha fazla dikkat sarfederek kriz yönetiminin fonksiyonunu arttırmakta ve örgütlerini krizlerden koruma yollarını bulmaktadırlar. Deneyimli yöneticiler, yeni yöneticilere bu durumlar hakkında tavsiyede bulunmaktadırlar. Yöneticiler çoğunlukla örgütlerdeki inançları, davranışları ve potansiyel tehlike oluşturabilecek noktaları tespit ederek bununla ilgili önlem almalıdırlar. Bu durumlar gerçeklerle ilgili olarak dar görüşlülüğün ve bazı davranışların örgütlerdeki krizleri oluşturduğunu göstermektedir. Türkiye gelişmekte olan bir ülke olarak ekonomik krizlerden sıkça etkilenmektedir. Para değerinde dalgalanmaları, enflasyonu ve develüasyonu birlikte görmekteyiz. Otomotiv endüstrisinde son krizin belirtileri 1999'da olmuştur. 2001-2002 krizinde ise ekonomide küçülme, enflasyonda artış ve tüketimde azalma görülmüştür. Bu durumda otomotiv endüstrisindeki üreticiler ihracata önem vererek iç pazarda talebe göre üretimde bulunmuşlardır. Satışları ve hizmetleri yeniden organize ederek yeni modellerin üretimine ağırlık vermişlerdir. Türkiye'deki son krizler otomotiv endüstrisinin ihracat kapasitesini artırmasına, aynı zamanda küresel pazarda kendi paylarını artırma fırsatını elde etmişlerdir.   ABSTRACT In today's world a company's perception of a crisis as a threat or an opportunity does appear to influence a company's willingness to engage in primary crisis management activities. One of the primary inputs of comprehensive crisis management is the planning factor. Planning is at the root of all crisis management activities. Furthermore, the perception of a crisis as a threat increased an organization's willingness to engage in planning activities. An organization that is able to identify a set of possible crises is more likely to initiate planning activities in preparation for the worst. The magnitude of such preparations seems to be a direct link between an organization's vulnerability to certain crisis situations and its level of perception toward each potential contingency. The more threatening a potential crisis is to a company's core competencies, the more it should partake in primary crisis planning activities. Thus, when evaluating, in early planning stages, the multiple components of a crisis, a company should assess the threatening aspects of a situation before considering crisis opportunity components. It is important to recognize and plan for contingencies that may directly threaten the company as a whole before anything else. Nevertheless, such a perspective should not be without the acknowledgment of possible opportunity outcomes. Such a dual perspective will diminish the inclination to panic, while focusing on threats that are most menacing to the company. Turkey is a developing country and unfortunately economic crisis occur very frequently. Key Words: Crisis management, automotive industry, exportation and importation, domestic market and international markets.

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INTRODUCTION

Although many business leaders will acknowledge that crises are a given for virtually every business firm, many of these firms do not take productive steps to address crisis situations. Companies generally go to great lengths to plan their financial growth and success. But when it comes to crisis management, they often fail to think and prepare for those eventualities that may lead to a company's total failure. Safety violations, plants in need of repairs, union contracts, management succession and choosing a brand name, etc. can become crises for which many companies fail to be prepared until it is too late. The tendency, in general, is to look at the company as a perpetual entity that requires plans for growth. Ignoring the probabilities of disaster is not going to eliminate or delay their occurrences. Strategic planning without inclusion of crisis management is like sustaining life without guaranteeing life. One reason so many companies fail to take steps to proactively plan for crisis events is that they fail to acknowledge the possibility of a disaster occurring. They simply choose to ignore the situation, with the hope that by not talking about it, it will not come to pass. The companies who prepare a proactive crisis plan, their decisions will be more rational and better received, and the crisis will be of shorter duration [1]. Making decisions while under the stress, excitement and dangers of a crisis situation is much harder than having to react to a crisis in terms of a pre-approved framework. It is said that "there are two kinds of crisis: those that you manage and those that manage you” [2]. Proactive planning helps managers to control and resolve a crisis. Ignoring the possibility of a crisis, on the other hand, could lead to the crisis taking a life of its own. In a business organization, symptoms or signals can alert the strategic planners or executives of an eminent crisis. Slipping market share, losing strategic synergy and diminishing productivity per man hour, as well as trends, issues and developments in the socio-economic, political and competitive environments, can signal crises, the effects of which can be very detrimental. After all, business failures and bankruptcies are not intended. They do not usually happen overnight. They occur more because of the lack of attention to symptoms than any other factor.

A crisis occurs when an event increases in intensity, falls under close scrutiny of the news media or government, interferes with normal business operations, devalues a positive public image, and has an adverse effect on a business's bottom line [3]. Crises are caused by an interacting set of human, organizational, and technological failures that combine with regulatory, infrastructure, and preparedness shortcomings in the organizations' environments [4]. Researchers build on the crises definition by noting that organizational crises are highly ambiguous events that necessitate a decision or judgment that will result in change for better or for worse [5]. Crises have dual meanings as well as dual outcomes. Crises and crisis plans typically include four common elements: the plan, the management team, communication, and post-crisis evaluation. These four components together form the basis of crisis management activities, and should figure into any comprehensive crisis plan [6]. 

Much of the traditional crisis management literature stresses the fundamental importance of implementing an enterprise-wide crisis plan. In most cases, successful crisis resolutions stem from an organization's instilled crisis plan, whereas most instances of mishandled crisis situations result from a company's lack of such a plan [7]. Researchers tend to agree that organizations that practice proactive crisis management will lessen the damage of a crisis. Conversely, when organizations only respond to crises, the resulting damage seems to over-shadow potential opportunities [8]. Indeed, many of these companies believe that their company's prestige and goodwill will carry them through any unforeseen misfortune. This may true for huge companies that also have the financial resources to weather even the most disastrous crisis. But, smaller, lesser-known companies must heed the fact that 80% of companies without a comprehensive crisis plan vanish within 2 years of suffering a major disaster [9]. Thus, it seems that a crisis plan is indeed an invaluable that any company must take. The perception of crises may ultimately affect crisis outcomes. Furthermore, the perception of a crisis as an opportunity or a threat may also have significant implications. Crises are not inherently good or bad; they are merely perceived by most as bad. Many examples reveal the severe penalties attached to the unprepared ness of an organization [10]. Crises can destroy a company's reputation in a concentrated time frame. The perceptions of organizations would have been different if senior management had perceived these threats differently, prepared accordingly, and executed differently. Opportunities exist within any crisis situation. New leaders may emerge from a crisis, and in most cases a crisis leads to accelerated change in business processes that may prove advantageous in the long run [11]. Often companies that do survive disasters are more prepared for the next one. This thought does depend, however, on the extent of learning that the company in question absorbs from the event. Finally, companies that do handle a crisis effectively are generally perceived in a more positive way [12]. Many companies simply fail to identify these potential positive outcomes. The perception of a crisis as an opportunity should lead to an increased ability to consider various alternatives and thus a greater extent of proactive planning. Managers generally view opportunistic situations to be more controllable, thus including more members into the resolution process and thereby increasing the flow of alternatives [13]. On the other hand, the perceiving of a crisis as a threat will cause managers to limit the amount of information they consider. Thus, perception has the potential to influence the extent to which an organization is willing to engage in crisis management activities.

Much of the crisis management research today focuses on the technical aspects of dealing with crises. The implementation of a crises plan and the strategies involved in that plan has a great importance [14]. The formation of crisis management teams and their relevance play a difficult role in crises situation [15]. Many case studies detail preventive measures taken and lessons learned [16].

 

STAGES OF A CRISIS

 Most crises do not occur suddenly. The signals can usually be picked up and the symptoms checked as they emerge. A company determined to address these issues realizes that the real challenge is not just to recognize crises, but to recognize them in a timely fashion [17]. A crisis can consist of four different and distinct stages [18]. The phases are prodromal crisis stage, acute crisis stage, chronic crisis stage and crisis resolution stage. Modern organizations are often called "organic" due to the fact that they are not immune from the elements of their surrounding environments. Very much like a living organism, organizations can be affected by environmental factors both positively and negatively. But today's successful organizations are characterized by the ability to adapt by recognizing important environmental factors, analysing them, evaluating the impacts and reacting to them. The art of strategic planning (as it relates to crisis management) involves all of the above activities. The right strategy, in general, provides for preventive measures, and treatment or resolution efforts both proactively and reactively. It would be quite appropriate to examine the first three stages of a crisis before taking up the treatment, resolution or intervention stage [19].

 

Prodromal Crisis Stage

In business organizations, the warning lights are always blinking. No matter how successful the organization; a number of issues and trends may concern the business if proper and timely attention is paid to them. As a result of the companies ignoring the symptoms, and the financial losses that followed, caused the company to realize that it would have been easier to manage the crisis directly in the prodromal stage rather than trying to shift the blame.

 

Acute Crisis Stage

A prodromal stage may be oblique and hard to detect, but no action was taken until an acute stage occurred. An acute stage occurs when a symptom "demands urgent attention".  Whether the acute symptom emerges suddenly or is a transformation of a prodromal stage, an immediate action is required. Diverting funds and other resources to this emerging situation may cause disequilibria and disturbance in the whole system. It is only those organizations that have already prepared a framework for these crises that can sustain their normal operations. The reason why prodromes are so important to catch is that it is much easier to manage a crisis in this stage. In the case of most crises, it is much easier and more reliable to take care of the problem before it becomes acute, before it erupts and causes possible complications. In an acute stage, management can only take action to control the damage. However, the losses are incurred.

 

Chronic Crisis Stage

During this stage, the symptoms are quite evident and always present. It is a period of make or break. Being the third stage, chronic problems may prompt the company's management to once and for all do something about the situation. It may be the beginning of recovery for some firms, and a death knell for others. Either the organization is so overwhelmed by prodromal and acute problems that no time or attention is paid to the chronic problems, or the managers perceive the situation to be tolerable, thus putting the crisis on a back burner.

 

Crisis Resolution

Crises could be detected at various stages of their development. Since the existing symptoms may be related to different problems or crises, there is a great possibility that they may be misinterpreted. Therefore, the people in charge may believe they have resolved the problem. However, in practice the symptom is often neglected. In such situations, the symptom will offer another chance for resolution when it becomes acute, thereby demanding urgent care. Studies indicate that today an increasing number of companies are issue-oriented and search for symptoms. Nevertheless, the lack of experience in resolving a situation and/or inappropriate handling of a crisis can lead to a chronic stage. There is this last opportunity to resolve the crisis at the chronic stage. No attempt to resolve the crisis, or improper resolution, can lead to grim consequences that will ultimately plaque the organization or even destroy it. It must be noted that an unsolved crisis may not destroy the company. It most be noted that an unsolved crisis may not destroy the company. But, its weakening effects can ripple through the organization and create a host of other complications.

 

PREVENTIVE EFFORTS

The heart of the resolution of a crisis is in the preventive efforts the company has initiated. This step, similar to a human body, is actually the least expensive, but quite often the most overlooked. Preventive measures deal with sensing potential problems [20]. Major international functions of a company such as finance, production, procurement, operations, marketing and human resources are sensitive to the socio-economic, political-legal, competitive, technological, demographic, global and ethical factors of the external environment. What is imminently more sensible and much more manageable, is to identify the processes necessary for assessing and dealing with future crises as they arise [21]. At the core of this process are appropriate information systems, planning procedures and decision-making techniques. A soundly based information system will scan the environment, and gather appropriate data. Interpret this data into opportunities and challenges, and provide a concrete foundation for strategies that could function as much to avoid crises as to intervene and resolve them. Preventive efforts, as stated before, require preparations before any crisis symptoms set in. Generally strategic forecasting, contingency planning, issues analysis, and scenario analysis help to provide a framework that could be used in avoiding and encountering crises.

 

Strategic Forecasting

This technique primarily involves predictions. These predictions are based on assumptions that the organization is capable of adapting to new situations. Predictions can be for an abrupt change when trends of the past are unusable for projecting the future. Many forecasting techniques are now available to managers, which would project precisely but miss surprise events.

 

Contingency Planning

Contingency plans are alternative plans that can be put into place if events do not occur as expected. Whereas forecasting is based on predictable, and thus reasonably certain events, the contingency plans an organization prepares are for less certain situations. Contingency plans are also based, to some extent, on predictable environmental changes. Obviously, having prepared contingency plans helps to not only safeguard a company against a crisis, but also to resolve crisis situations as they occur.

 

Issues Analysis

This approach is related to and is very much similar to contingency planning. The purpose here to is to alert company decision-makers to evolving trends in the external environment of a business. The business, on the other hand, steers its efforts to make the issue advantageous to the company.

 

Scenario Analysis

Scenarios are attempts to describe in detail a sequence of events which could possibly lead to a prescribed end-state, or alternatively, to consider the possible outcomes of present choices. Also, the scenario is a hypothetical sequence of events designed to draw attention to causal processes and decision points [22]. Scenario analysis involves thinking about favourable and unfavourable situations that might arise, and the company's alternatives for preventing, facilitating or thwarting the processes that caused the situations. Scenarios may pertain to management succession in the case of a plane crash or death, take-over attempts and other disasters.

 

TURKISH AUTOMOTIVE INDUSTRY

Turkey is between Europe and Asia. Turkey's geographic situation has a strategic importance. Turkish automotive industry has an important strategic advantage and automotive companies from Italy, Germany, France, Japan, USA and S. Korea have important investments. They have export capacity and especially in crisis period this capacity helped them to survive from the crisis with less financial loss. In Turkey production costs are lower, compared to developed EC countries. Turkish automotive industry had begun production in 1950. Today we have 19 companies in production of which 5 are automobile producers and 14 are commercial vehicle producers. In this industry most of the companies have foreign partners and they produce for both domestic and international markets. Since the beginning, production is based on commercial vehicles. There is a high degree of competition among them. Automotive industry is trying to increase its export capacity, because of the recent economic crisis Turkey is going through. In these days economic conditions are very hard. Turkish Lira has been devaluated 40 percent and percentage of inflation has increased to 50 percent. To be successful in foreign markets automotive industry has increased its capacity and quality. There is a high degree of competition between import automobiles and Turkish companies' automobiles. At the same time, companies have begun to give importance to social responsibility practices. Most of the employees in the industry are the members of labour unions and percentage of membership is very high if we compare this industry with other industries. The numbers of employer and employee unions are approximately the same that can be seen as a positive indicator for the industry. Companies whose partners are from Far East Countries, they prefer to have work place representatives, like Mitsubishi, Hyundai, Toyota, Honda. Human resource departments also play an important role in giving employees other financial and social supports. Number of women workers is not at a satisfactory level that is partly due to lack of educational possibilities. The companies in this industry provide various facilities for their workers.  Workers prefer teamwork and this working style increases good friendship ties among workers. Automotive industry tries to give financial support to environment protection projects. Also, they give financial support to training and education. Sponsorship mechanism works on some social activities and professional seminars.

 

CRISIS MANAGEMENT IN TURKISH AUTOMOTIVE INDUSTRY

An organization that does not evaluate its crisis management strategy after a crisis will be little better prepared to manage the next crisis. Thus, it is not surprising that pre-and post-crisis activities correlate significantly with both perception criteria. Again, the company that recognizes the dual nature of a crisis will have a greater propensity for proactive planning and recovery, which leads to more effective crisis management. There is a link between external communication and the perception of a crisis as a threat and opportunity. Although realizing the threat of a crisis, an organization will carefully select the message content and address each specific public affected. An organization will also benefit if it perceives the positive outcomes of a crisis, which stem from effective crisis communication. Good external communication in a crisis can result in favourable public perception, leading to an improved corporate image. But this depends on the nature of the crisis. In some cases, effective external communication will merely maintain a company's image. In any case, a company will not benefit by perceiving a crisis entirely as a threat to the exclusion of even considering potential opportunities. Organizations that feel threatened tend to limit the amount of information they process and communicate. This typically leads to negative public perception and the belief that the company is untrustworthy. Recognizing that crises can provide opportunities is crucial to balancing an organization's external communication practices. Furthermore, by communicating a balanced perception of a crisis, the organization is more likely to sway public opinion and dispel false rumours about the severity and ultimate consequences of a crisis. Data used in this paper have been gathered from OSD (Turkish Automotive Manufacturers Association) that gives us the soundest numbers.

 

Table 1. Capacity Usage of Automotive Manufacturers - 2002

Resource: OSD (Turkish Automotive Manufacturers Association) [24].

 

Turkish automotive industry cannot use all it's capacity. In spite of exportation of vehicles and tractors nearly there is no demand in domestic market and capacity usage ratio is 1/4. Indicators show that exportation in commercial vehicles continues and capacity usage is 1/3, and in tractor production capacity usage is 1/6. In automotive parts and components manufacturers industry production is in negative position. Capacity usage is under accepted ratios in automotive industry. The result of this situation costs are very high in spite of exportation. Domestic market must be in stable position at the shortest time.

Figure 1. 1990-2002 Period Automobile Production and Exportation

Resource: OSD (Turkish Automotive Manufacturers Association)

 

• In 2002 January-March period total of 66,001 vehicles were produced.

• In domestic market, continues decreasing of demand and production continued in limited level. Production continued as a result of exportation of approximately a sum of 51,000 vehicles.

• If we compare 2002 January-March period with the 2001 the same period automobile production has increased 6% and a total of 44,321. We see high decrease of demand in domestic market. Exportation of 36,000 automobiles helped to continue production in domestic market.

• Compared with 2001 in first three months commercial vehicle production increased.

 

Minibus	68%
Bus	41%
M. Truck	25%
Midi bus	11%
Pickup	1% decreased, and
L. Truck	58% increased.

 

Compared with the last year, in 2002 January exportation increased 9.3% and importation decreased 23%. At the same period foreign trade balance decreased 62.3% from 1,825 to 691 million US dollars. In January 2001 export/import ratio was 54.9%, in 2002 it increased to 78.0%.

 

Table 2. Recent Situation of Exportation and Importation

Resource: OSD (Turkish Automotive Manufacturers Association)

 

In 2001 exportation increased 94% compared with the year 2000.

In 2001 October-December period consumer credits used 75% of total sales. But sales with credit decreased 79% in 2001 (October-December) compared with 2000 the same period.

 

Figure 2. Periodical Distribution of Consumer Credits for Light Vehicles (Per Person)

Resource: OSD (Turkish Automotive Manufacturers Association)

 

 

Figure 3. 1990-2002 Period Total Production and Automobile Production

Resource: OSD (Turkish Automotive Manufacturers Association)

 

2002 January August period automotive industry results

Market:

• As an expected and traditional trend in 2002 August the number of total sales are 14,877 and the number of automobile total sales are 73,08.

• In 2002 January the number of total sales are 2,396 and in automobile industry, the number of sales in total market are only 591, nearly decreased to critical position. Afterwards, each month sales doubled and increased. In spite of this automotive industry has reached the lowest number of sales in 2002 August, as we compare with last 10 years.

• This result shows that yearly sales will reach the number behind the number in automotive industry has reached before 1990.

• The number of sales has reached ½ of last ten years average.

• If we look at the 10 years average of the total market, the first 8 months realized as 250,800 units and this result shows that 63% decrease in 2002 and with sales of 91,800 units.

 

Figure 4. 10 Years Average of Automotive Industry

Resource: OSD (Turkish Automotive Manufacturers Association)

 

In 1992-2002 January-August periods, Light Commercial Vehicles (minibus and truck) sales resulted as shown in Table 3.

 

Table 3. 1992-2002 January-August period, Light Commercial Vehicles sales.

 

 

Resource: OSD (Turkish Automotive Manufacturers Association)

 

In 2002 January - August period the total of light vehicle sales, compared with 2001 January -August period increased 2% percent. In the same period, import light vehicle sales increased 6% percent and the domestic production of light commercial vehicles was the same.

•   The market share of imports realized as 36% percent in 2002.

•   In 2002 January-August period total number of commercial vehicles compared with the 2001 January-August period has increased 6% percent, and the number increased to 12,540 units to 13,277 units. The number of import sales:x

 

EEC Countries	14% increased and
East European Countries	90%
Far East Countries	4% decreased.

 

Production:

In 2002 January August period automotive industry has produced 198,386 units.

 

Figure 5. Automobile Production (January-August Period)

Resource: OSD, 2002