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MEDITERRANEAN
From Site Selection magazine, March 2011
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‘Outlier’ No More

Izmir wins out over all of Eastern Europe for Cummins’ first manufacturing plant in Turkey.

MEDITERRANEAN
Site preparation is under way for Cummins’ new manufacturing campus in the Aegean Free Trade Zone overlooking the city of Izmir, Turkey, on the Aegean coastline.
Photo courtesy of Cummins

by ADAM BRUNS
T

he newest multinational among many to find the Aegean Free Trade Zone in Izmir, Turkey, is Cummins Inc., which announced in December its intent to invest US$70 million in a new greenfield campus to manufacture products for Cummins Filtration and Cummins Generator Technologies.

More than 800 people will work at the complex, with more than 85 percent of annual production expected to be exported. That's in line with Turkey's age-old reputation as a crossroads of commerce.

"The expansion in Turkey allows Cummins to meet the product and service needs of the growing markets in Europe, the Middle East and Africa," said Ignacio Garcia, vice president and chief manufacturing officer for Cummins. "It's a dynamic geographical region that has a skilled work force and strong supply base. In addition, Turkey is growing as a manufacturing base for our customers."

Indiana-based Cummins, with 2010 sales of more than $13.2 billion, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. It already had a distribution and office presence in Istanbul, Izmir and Ankara, but this is its first foray into manufacturing in Turkey. Cummins plans to first build a filtration manufacturing plant and follow with a facility to produce alternators for its power generation business. The facility will complement similar Cummins production and logistics facilities in France, Belgium and the U.K.

Among the agencies whose assistance proved valuable to the location were the Turkish Investment Support and Promotion Agency (ISPAT), ESBAS at the Aegean Free Zone, and the U.S. Consulate commercial office. ISPAT President Dr. Huseyin Aslan said his agency had been working with Cummins for nearly a year and a half, after initiating contact through ISPAT representatives in the U.S.

Within Cummins, the team was broad and deep, explain David Newsome, director - real estate, new construction and facilities, EMEA, for the corporate real estate services department at Cummins Ltd.; and Martin Norman, real estate manager, EMEA. They work out of offices in Stockton-on-Tees, U.K.        

"The team comprised a number of multidisciplinary, multifunctional areas and people within Cummins," says Newsome, who started working for the company in 1969 at its site in Darlington in northeast England. "The business units, real estate and facilities, HR, communications, IT, manufacturing … every area within Cummins."

All told, the team numbered approximately 20 people, plus occasional participation by extended team members.

"It's a very democratic process," says Norman. "If you're involved in the decision-making process, you're much more liable to be committed to the final choice."

Decision Engine

"We use Six Sigma," says Newsome. "all the tools available to use under Six Sigma were utilized during this process in evaluating, analyzing and selecting a site."

Every country in Eastern Europe was considered at the outset, says Norman, with the team funneling down from a list of 25 countries and "a couple outliers which we knew attracted manufacturing locations," he says, namely Turkey and Morocco.

Analysis of manufacturing bases, among other factors, took the group of candidates down to 18. A more detailed matrix involving demographics and skills availability of the work force, size of the home market, manufacturing costs and economic and political stability took that group to seven finalists.

Newsome says the Six Sigma principles of "measure, analyze, improve and control" helped the team go from those seven countries to three and then one.

"We did a detailed cause-and-effect analysis, then country visits and risk assessments, and then failure-mode effects analysis [FMEA]. We had a top-level control plan."

While they decline to name the finalists, Newsome says, "Suffice to say there were good Eastern European countries. You probably know which they were."

Short-list analysis was aided by Colliers International's Kerim Cin, the Istanbul-based managing partner for Colliers Turkey, and Ernie Himsl, a Colliers account manager based in Prague.

"We asked them to give us a full country report on each of the three finalist countries," says Newsome. "Colliers would dig into their database and tailor it to suit the Cummins selection process, so we could dig in deeper."

"An awful lot of data went into this final analysis," adds Norman, with weekly reviews by the full team involving an increasingly large Powerpoint presentation. Finally a consensus recommendation was reached.

"It was close," says Norman. "There were cons, and significant pros. The next thing was to do a SWOT analysis, so we understood everything was not 100-percent positive."

Seismic activity, for example, is a common concern among companies looking at Turkey.

"Its all about risks and exposures," says Newsome, "trying to understand the risks, and rank them from Cummins' perspective. We need to make sure we mitigate any risk to make sure our insurance companies cover our portfolio."

Two If By Sea

Once the choice of Turkey was established, visits were made to four different tax-free trade zones there, beginning in July 2010. That list was subsequently shortened to two, with one in Izmir and the other, the European Free Zone in Çorlu, west of Istanbul, connected to a major European road network. The sea got the nod.

"We wanted to be next to a major port at the end of the day," says Newsome. The country's young and talented population was also a force to be reckoned with, as noted by Joseph Saoud, president – Cummins Filtration, in the company's project announcement when he said Turkey has a "young, growing labor force that we expect to continue to be cost competitive for many years to come."

The tax-free status granted by the Turkish government is the primary incentive offered beyond the business-case incentives explored during Cummins' site selection process. Other standard incentives available in the free trade zones include training support, employment incentives and customs duty exemptions.

That's not to say Cummins didn't try to push the envelope a bit.

"We tried to explore, and were given the impression these were standard incentives, and we could not negotiate beyond what was available," says Newsome.

Other infrastructure elements are non-negotiable by circumstance if not by outright policy. For instance, the electric power market in Turkey, while in the process of privatizing, isn't there just yet.

"For the time being, we're buying power from a national supplier," says Newsome, "so electricity costs were identical at all of the short-listed sites, and power availability and cost didn't come into the decision."

Fielding the Talent

Current energy-efficiency and other attributes have the complex aiming for a LEED rating between basic and silver. "We've analyzed LEED, and we think when you look at the balance between cost and benefit, that is where we want to pitch this building," says Newsome.

In November, a Cummins team did pre-qualification and interviews of local architects, project managers and general contractors for the project, after having engaged a lead architect in June 2010. Once the local architect was chosen, the search began for a land clearance contractor, which was chosen in early January. Selection of a project manager was expected to take place in February.

"We intend to go back to Turkey sometime in March to pre-qualify general contractors and at some point select a general contractor after a rigorous tendering process," says Newsome.

In the meantime, another interview process is under way for some key individuals to be hired onto the Cummins team, drawing from an extensive and educated work force in and around Izmir, Turkey's third largest city and home to five universities.

"Izmir has a great selection of universities," says Newsome, "and some skilled and talented people coming out of them."


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