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By Rafi-uddin Shikoh Posted, Feb 3, 2005

Diversify or perish --- for many traditional conglomerates in the OIC member countries, this is the new corporate strategy doctrine. From textile companies in Pakistan and Indonesia to the oil and gas giants of the Gulf, business leaders are not only seeing increasingly global competition trampling upon their traditional markets, but also watching, almost in awe, the tremendous opportunities of the information revolution pass them by.

Beginnings in Textile

Mr. Mehmet Zorlu nurtured Zorlu Group's humble beginnings as a small textile company in the 1950's. He sowed the seeds of a culture of quality, integrity and perseverance.

Today, under Mr. Ahmet Zorlu's leadership, the Group is well positioned to capitalize on the growing information-driven global economy.

An Electronics Giant

Zorlu Group's consumer electronics company, Vestel, today has an impressive 20% of Europe's color TV market share. According to a 2004 Vestel strategy presentation, it leads the European market in terms on unit sales followed by Philips and Beko (another Turkish brand.) It operates in television components, personal computers; PC monitors and white goods, and has R&D centers in Turkey, UK and even the Silicon Valley. Vestel has quickly become the export leader of Turkey, selling its products in 110 countries with export sales reaching $1.5 billion in 2003.

But this did not happen overnight, nor was it easy. In a statement, Mr. Ahmet Zorlu said, "Behind this success lie our production capacity, our R&D capability; in short, 50 years of hard work."

Mr. Ahmet Zorlu, learned the business early from his father and was actively involved in it from age 15. He took charge by mid- 1970's, and by the 1990's built its textile business to become the world's largest curtain manufacturer. The group had achieved great heights in textile, and Mr. Zorlu was now looking for opportunities to diversify.

Acquisition as key diversification strategy

Given the strength of its capital base and years of successful management experience, Mr. Zorlu, pursued carefully selected acquisitions as the means to diversify. The Group acquired troubled Vestel electronic Group in 1994. This acquisition was a turning point for the Zorlu Group. Its successful turnaround and continued strength in the Zorlu Group's capital base , gave Mr. Zorlu the confidence to further diversify into the fast-growing energy and financial services sectors. By the end of 1990's, the group had tripled ts operations.

At the same time, it continued to strengthen their traditional lines of business with continued investment in state-of-the-art spinning, weaving and textile technology, maintaining their prominence in the international home textile industry. This included setting up manufacturing in South Africa and acquiring majority shares in one of the largest home textile producer in Europe: the French firm, Bel-Air Industries.

A report on Zorlu Group says the following about its investment strategy. "The Zorlu Group is not afraid to grow because they believe they choose their projects prudently, but they also recognize that growth must be managed. That is why they are investing in their human resources, reinforcing their management capability with integrated business software and drawing heavily on external consultancy."

Managing Diversification

At the time of its acquisition, Vestel was struggling,; suffering from the 1994 financial crisis in Turkey. The challenge for Zorlu Group was not just the non-familiarity with the consumer electronics market, but also bringing back profitability to Vestel. Mr. Zorlu reportedly spent three-weeks in East Asia studying the electronics giants realizing that competition with the giants would require a long-term strategy. In its 2004 strategy presentation, a key advantage cited over the Far Eastern and Chinese competitors in terms of the European market was the low cost of customs duties for Turkey and its distribution proximity to Europe. Mr. Zorlu, capitalizing on this advantage, increased production capacity to compete with scale.

In managing Vestel, Mr. Zorlu steered clear of being too interfering. In an interview to Turkish Time, Mr. Zorlu had said that their strategy was to advise Vestel management but not interfere in their business. According to their website, between 1995 and 1997, the Zorlu Group invested more than US$ 40 million in expanding and modernizing Vestel's capacity and business organization. During the same period, its consolidated net sales and exports increased by 148% and 190% respectively in US$ terms, and it's after tax earnings by more than 500%.

In a 2003 Business Week article, Mr. Zorlu credited acquisition and growth as a means to remain competitive. Mr. Zorlu's commitment to growth is well illustrated by its investment of over $70 million in its white products for 2004. In its 2004 strategy presentation, the company points to its continued focus on consumer electronics and white goods and reliance on geographic expansions as its main engine of growth (Russia, ex-CIS, Central Asia, and India.)

The Zorlu Group's future direction is well tied to Vestel. In a message on Vestels website, Mr. Zorlu says, "We are very proud that thanks to our formidable know-how, R&D and global production facilities we are able to globally brand the meaning of Vestel as "Turkish for Technology."

Diversification trends for OIC based conglomerates

Even as Turkish, Malaysian and Indonesian conglomerates have succeeded in diversifying, (see DS100 analysis) most others in the Muslim world have been struggling.

Recent trends, however, are positive. Dubai has in the past decade adopted key reforms which encourage diversification, including huge investments in IT, media and knowledge-based sectors. Another encouraging sign is how some of the top Saudi companies are now venturing abroad. Saudi Basic Industries Corp. (SABIC), for instance, has acquired a Dutch petrochemical company and has taken a large stake in Mexican petrochemical company, Pemex. Another company, the Savola Group, has taken a controlling stake in a major edible oil company in Kazakhstan.

It seems, the diversify-or-perish doctrine is getting some attention after all.