Efficiency and Risk Analysis of the Turkish Textile and Clothing Industry Using Data Envelopment Analysis

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ABSTRACT

In this study, the efficiency and risk analysis of the Turkish Textile and Clothing Industry (TTCI) has been performed for a period of 12 years. Efficiency has been measured with the Data Envelopment Analysis using two different data sets. The research findings indicate that the TTCI has not attained full efficiency for the period under examination, though efficiency improvements in the recent period have been observed. According to the efficiency analysis findings of the publicly-held companies, their efficiency was higher than the industrial average in some years. The general result for both study groups is that the efficiency level of the sector decreased following the economic crisis. In addition we have conducted risk analysis, since an efficient company may have assumed a very high level of risk. The most important risk measurement for the companies is the financial leverage level. The study results showed that the rate of short term borrowing increased at fourfold, compared to the publicly-held companies. Other research findings also suggest that the overall risk taking level of the sector was higher compared to the publicly-held companies. Consequently, it can be claimed that the TTCI has important efficiency and high risk management problems.

INTRODUCTION

The Turkish Textile and Clothing Industry (TTCI) has been the driving force of the Turkish economy since the 1970s. Inexpensive production factors and Turkey's close location to the European Union (EU) were significant contributors of this development, despite EU countries being the largest market. Making best use of its advantages, responding rapidly to demands, and adapting itself to changing market conditions, Turkey has been able to maintain its place in the EU market. However, conditions have recently deteriorated contrary to Turkey's positive expectations concerning the sector's position in international markets. Increasing competition due to globalization, kindling of the cost competition by subsequent crises, narrowing opportunities in international markets, and other significant problems have recently created bottlenecks in the TTCI. Also, as a fundamental sector of the economy, the sector's failure to make strategic long-term planning has contributed to existing problems. Obviously, attempts at removing the quotas in the post-2005 period have further aggravated the existing problems of this sector. These developments combined with today's harsh competitive environment require the restructuring of the TTCI.

This study conducts a non-parametric method of Data Envelopment Analysis (DEA) to analyze the efficiency level of the TTCI for the period 1992-2003. Accordingly, the changes in the efficiency level of the TTCI in crises periods and the reasons behind such changes were examined. The efficiency and risk analysis of this sector were performed for a period of 12 years. In the efficiency measurement with the DEA using two different data sets, it was found that the sector did not reach full efficiency. Recently however, a relative improvement has been observed. The efficiency analysis of the publicly-held companies was higher than the industrial average in some years. The general result in both study groups is that the efficiency level of this sector decreased following the crisis.

On the other hand, the extent to which the industry is efficient at which risk level is very important. An efficient company may have assumed a very high level of risk. Therefore, risk analysis was also performed for the companies. The most important risk measurement for the companies is the financial leverage level. The companies which have the most financial difficulties, particularly during crises, are the ones with high levels of short term liabilities. The study results showed that the rate of short term borrowing increased at fourfold overall, compared to the publicly-held companies. As for the risk taking level of this sector, the overall level of the sector companies was higher compared to the publicly-held companies. …