Turkey, as a country, has a unique advantage of being perfectly positioned at the junction of the Middle East and Europe. This locational advantage, coupled with diverse climatic conditions of extreme summers and winters, makes it the ideal location for the growth of a healthy HVACR industry. However, the country has had to weather its share of setbacks – in the forms of the economic slowdown, currency crisis and the ongoing pandemic – all having a major impact on the overall economic scales of the country.
As Istanbul-based Kenan Kus, Market Research Consultant, BSRIA Worldwide Market Intelligence, puts it, “The pandemic was the main market driver pushing the residential sector to invest in split units, such as single-split, multi-split or even the VRF market.” Thus, it can be rightly said that while the pandemic has visited misery on the general populace, it has spurred growth across various HVACR sectors. The country’s Air Conditioning and Refrigeration Manufacturer’s Association, ISKID, in its 2020 Turkish Air Conditioning Industry report, highlighted data that supports the view: In 2020, the market witnessed more than 1.5 million production-sales activities.
This resulted in industry growth by 10%, which was beyond the pre-crisis levels of 2019. For the pandemic duration, an increase in shopping sales to improve home comforts expanded the retail and wholesale market in domestic-type air conditioner purchases, resulting in a nine per cent growth rate. There has also been growing attention towards individual projects in the coastal areas and an increase in the use of mini-VRF devices in recent years.
Despite the pandemic, the fan-coil unit (FCU) market in the country recorded a 10% increase in production and a 40% decrease in imports in 2020. As per reports, the sales of air-handling units (AHUs) have increased year on year, with recent investments in airports and city hospitals. Domestic-type air conditioner sales, too, increased by 42% in the last five years, and by 14%, compared to 2019, exceeding 12,000 units. Export sales increased by 20% over the last five years, and by 3.6%, compared to 2019, exceeding 5,000 units. Turkey boasts nearly 50 manufacturers, and the manufacturing process meets 70-75% of the domestic market demand. As per manufacturing data, more than 17,000 AHUs were produced, but very few imports were made.
Recent years have seen a rather positive growth in Turkey’s HVACR industry. As Ayfer Altun, Turkey DCS Senior Sales Manager, Danfoss, explains: “HVACR manufacturers have adapted to new technologies and regulations, resulting in success in their export business, especially to Europe, the Middle East, the Caspian Region and the United States.
During the pandemic, the sector increased production capacity to meet the demand in countries under lockdown. Turkey HVACR OEMs reached the highest export sales in history. According to the first seven-month reports of 2021, Turkey’s HVACR companies achieved an export volume of USD 3.5 billion, mainly to Germany, UK, Italy, France and Russia.
The advantageous factors for Turkey are the geographical location, and low labour and energy costs, when compared to Europe. Fast and tailor-made unit availabilities have also been the biggest advantages.” Data from the Turkish HVAC&R Exporters’ Association (İSİB) state that the Turkish air conditioning industry broke the all-time export record with monthly exports reaching USD 547 million in March 2021. The industry’s export figures increased by 38%, compared to March 2020, and by 22% since the beginning of 2021.
The share of the industry in Turkey’s exports increased from 2.5% to 3.2%. The Turkish air conditioning industry, which increased its exports in all sub-product groups, achieved an export increase of 32.4% in heating systems and elements, 4.4% in the cooling systems and elements, 9.8% in the air conditioning systems and elements, 23.4% in the installation systems and elements, 32.9% in ventilation systems and elements and 20.9% in insulation materials. In March, the countries with the highest export figures were Germany, the United Kingdom, Italy, France and Poland, respectively.
Reportedly, the government was of help during the pandemic. Support from the government ensured a positive outlook. “During the pandemic, the government allowed production facilities to continue work, increasing export numbers,” Kus says. Subsequently, government-supported construction projects and industrial investments have been the main elements of growth in the domestic market. Further, there has been a focus on encouraging better Indoor Air Quality (IAQ), with more fresh air consumption.
Elaborating on the cause, Kus says: “The domestic air conditioning market saw the entrance of new filters with stronger features, such as UVC lamps, and more use of rooftop units. Companies like Hitachi, riding on the pandemic wave, introduced the Frost Wash technology in their units. Frost Wash is a self-cleaning technology, which aims to maintain the balance between cleanliness and comfort. The frost is later melted and flushed away by the unit, unclogging the heat exchanger and enabling fresh, clean and comfortable air. However, the launch of new technologically advanced units came at a price – of 20-30% higher costs, resulting in lower sales.”
Turkey is primarily a locally dominated market with a lot of family-owned strong businesses in the HVACR industry. The list includes UNTES, Aldag, IMBAT, Achilles Group and VESTEL International, among others. This does not dilute the fact that major international players, such as Danfoss, Daikin and Mitsubishi, also have a significant presence. International does not guarantee protection from external forces, though.
Sharing how Danfoss survived the tough period, Sertan Genc, Turkey DCS Senior Sales Manager, Danfoss, said: “For us, the year 2020 was a period of transition. This period negatively impacted our business, just like all other players in the market. However, when we compare our performance in 2021 to 2019, there is strong double-digit growth with recovering market conditions.
This growth is mainly driven by industrial automation, cold chain and residential verticals.” Post the pandemic, the industry has witnessed a huge penetration from the Chinese market. In the words of Kus, companies became very cost-conscious. This resulted in contractors and even consultants opting for affordable Chinese products.
This also resulted in an increase in the import of Chinese equipment either through direct companies, branch offices or distributors. The next development gaining momentum has been local companies selling their equity holdings to international companies, be it a 50% stake or even a complete 100% stake.
Market analysts state that Turkey has a robust HVAC industry base, owing to key factors, such as a growing urban population and decent growth in the economy. These factors will boost consumption in the coming years. While the factors are encouraging, companies in the country have also been active in strengthening their operations. BVN is one such company that has implemented several strategies to be robust. As Mustafa S Marangoz, Export Sales and Operations Manager, BVN, says, “The pandemic made us implement some positive changes. In terms of management, we expanded our R&D centre staff. We served our Turkish customers with a new online sales site, launched in 2020, which in the coming months, will expand to international export markets, such as the Middle East. We are currently one of the suppliers of the Turkish national train project, which is under construction. In the first phase of this project, we produced and delivered roof fans for trains. We are currently working on the second phase of the project.
We are also in co-operation with the governmental authorities for localization of the foreign-origin products included in the project.” Mustafa Sezer from VENCO shares his company’s focus, saying, “We shifted our focus to carpark ventilation systems and supplied service to clients and end-users, including mechanical system design, CFD analysis and commissioning.” VENCO, he says, also supplied F300 smoke-extract fans and jet fans to many projects.
The Middle East connection
Turkey, through its location between two continents, shares a profitable relationship with the Middle East. This is evident from not just the export numbers but also from the companies that deal with their counterparts in the region. As Sezer explains, “VENCO began making a new design for F400 products prior to COVID-19, especially requested by countries like the UAE and Bahrain. Interestingly, the design and certification of F400 products were completed during the pandemic, and F400 products were launched to the market.
These products will be the key to growth in the region.” Sharing the Middle East growth story from a Danfoss perspective, Altun says: “Danfoss has identified huge growth potential in emerging markets such as Turkey, Middle East and Russia. Last year, these markets were growing despite the pandemic, driven by strong import, export, and domestic sales. The demand for HVAC products has increased due to factors such as high urbanisation rate and increase in construction and renovation of sites.
All these are factors that will affect the growth of our brand in the region and increase our market share. Cold chain, district heating and cooling, industrial automation and new investments of residential verticals are high on the agenda for growth opportunities.
Green transition is also a big focus, with Danfoss having the solutions which fit perfectly enabling green transition.” Striking a similar optimistic note, Marngaz says: “A project is underway to expand our existing SF model product ranges in cooling fans. Within the scope of this project, we will present cooling fans with 710mm, 800mm and 900mm diameter options to our business partners. The launch is planned for end of this year. These new products will strengthen our relationship with the Middle East markets.”
Turkey is a highly price-sensitive market. As Kus explains, “In Turkey, the Internet of Things is fast gaining ground with Building Automation Control Systems (BACS) and Building Management Systems (BMS). For example, automation and green buildings are now the focus. Turkey follows EU legislation, being a candidate member. So, new developments across the EU will within a year or more be implemented in Turkey, too. However, the new trend now is more towards refrigeration gases, such as R32, with a decline in consumption of R410A in the next few years. Like the EU, Turkey will also go more with green and sustainable refrigeration.
There is also the penetration of Artificial Intelligence and the Internet of Things, which is increasing year by year. Technological advancements are followed closely, but being a price-sensitive market, deployment is delayed.” Danfoss is not far behind in terms of following the trend. As Genc asserts, “We are very focused on digitalization. The company entered into a collaboration with Microsoft to bring domain-expertise in refrigeration and HVAC to the cloud with Alsense IoT food retail services. The cloud services enable major savings and operational efficiency and can further increase sales effectiveness for refrigeration and HVAC system owners and professionals.”
Turkey looks to be in a strong position with the kind of development in the HVACR industry. With the EU planning on going natural gas-free by 2050, Turkey will follow soon. Keeping with the trend, there is a lot of focus on heat pump technologies and products as well as solar thermal heat pumps. All have a focus on energy efficiency, including the fast-growing inverter technologies. Interestingly, the government ensures that companies consider solar thermal offerings right from the bidding stage of any project.