I just returned from a week in Istanbul, where I was reporting a piece on what Turkey’s burgeoning contemporary art scene tells us about where the country is headed politically (you can look for that in our upcoming style and design special in the magazine later this month). But I also learned a few economic lessons that have particular relevance to the U.S. and global economy right now.
1. Manufacturing matters. In Istanbul, I met up with Ersin Akarlilar, the CEO of Mavi Jeans. If you aren’t already wearing Mavi, your kids probably are – the company sells hundreds of millions of dollars worth of high end, slim fitting denim all over the world. Building a global luxury brand is tough, especially for an emerging market firm that doesn’t have the cache of European heritage. But Mavi has managed to do it, in part because they kept an ownership stake in their factories, which allows them to have enough supply chain flexibility to respond quickly to market trends. “If Nordstrom calls and says they want 10,000 pairs of jeans in department stores within a month, you’d better have factories that can produce and ship them quickly enough,” says Akarlilar. Otherwise, the retailer will move on to the next hot brand that can. If Mavi had outsourced production to Asia, where labor is half the price it is in Turkey, they wouldn’t have been able to get the product to market on time or on budget. But since they kept what’s known in the trade as a “vertically integrated supply chain” (meaning, production, marketing, and sales are done in the same place) they’ve managed to thrive, and are now worn by the likes of Kate Winslet and Chelsea Clinton.
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2. There’s no such thing as decoupling. There’s a lot of talk in the global economy right now about how emerging markets don’t need the West. It’s just not true. As Mavi and many other firms in Turkey pointed out to me, despite government efforts to diversify into new regional markets, Europe still represents over half the country’s trade, and it’s an even bigger chunk of the market for many countries in the Middle East and North Africa. Europe is even China’s number one trading partner. What happens in the West is felt by the East, and visa versa. That’s one big reason we’ll see an across the board slowing of emerging market growth this year.
3. Political risk is under-rated as a driver of the global economy. Turkey has been in the news a lot this year because Prime Minister Recip Erdogan has emerged as a regional leader in the post Arab Spring world. But a little over a year ago, nobody could have predicted Arab spring. Meanwhile, France’s vicious rejection of Turkey’s EU bid has helped turn the country, which for years had been Westward facing, in a new direction. It’s not just the Middle East that’s facing major political change – China will have a new leadership in 2012. There are elections coming not only in the U.S., but also in France, and in Brazil. Four seats on the U.N Security Council will change over this year, too. It’s time to start thinking about political risk again when calculating global economic growth. There will be a lot of the former this year – how much of the latter remains to be seen.