Executive Summary
Introduction
Size of the Market
Turkey is a pancontinental nation positioned in Western Asia and a minor potion in South Eastern Europe. Turkey’s neighbouring countries include; Armenia, Iran and Azerbaijan on the east, Syria and the Mediterranean Sea on the south, Greece, Bulgaria and Black Sea on its north and on the west is the Aegean Sea. About 70 percent of the residents in Turkey are Turkish while approximately 20 percent identify as Kurds, the country’s main minority group. Other minority groups are about 10 percent. The capital city of Turkey is Ankara while its largest city is Istanbul.
Turkey has a comparative youthful and growing populace. The country has a population of 80.7 million people. Over a half of Turkey’s populace is between 15 years and 54 years. The average age of its people in 2019 is 30 years while in 2010 the median was 28 years. Turkey’s population consists of 51 percent women and 49 percent men. The majority of Turkey’s population, about 72 percent, resides in the urban cities. The cities include Istanbul, Izmir, Ankara, Bursa and Adana. In accordance with Turkstat, 23 percent of Turkish families will have yearly wages of US$50,000 and above in 2016. This is an income increase of 6 percent from 17 percent in 2011.
The country is growing in urbanization and education yearly. However, it still trails after most of the Organisation for Economic Co-operation and Development (OECD) countries in the education sector. Above 6 million people have higher education and 3 people out of ten are university graduates. The employment rate in Turkey is higher for high educational graduates as it contrasts by more than 50 percent compared to those with lower levels of education. Men’s employment rate is higher than women’s by 22 percent in the level of education. The workforce in Turkey is more than 31 million people. Employment in the service sector is 54.3 percent while in the industrial sector is 26.9 percent. The industry hires about 18.8 percent of workforce nation-wide.
Socially, the Turkish customer population qualities is considerably diverse compared to those of European and Western buyers with regard to age and ethnic qualities. Majority of the Turkish consumers consider keeping up with the current drifts and observing self-care. The luxurious lifestyles are seen in the majority of people living in Turkey’s capital city Istanbul. Approximately, 75 percent of the luxury market is situated in Istanbul. The use of social media is on the rise and there is a need of beauty surgeries among the middle-aged people. Furthermore, most consumers have a habit of shopping luxurious products and electronics.
Examining the consumers by age, younger people spend a lot of time in their computers and purchase most of their toys and dolls online. In teenagers, the internet has substituted the customary leisure interests and actions. A lot of teenagers spend most of their time on the internet socializing with their friends. The young adults take pills and treasure their automobile brands. Old people and mid-lifers still use the old-fashioned contact methods such as phone calls hence there is high need of simple cell phones. However, the high unemployment rates and high inflation have made the Turkish consumers doubtful and hesitant in purchasing goods. The purchasers’ confidence has been affected by high inflation hence declining since October 2017. The Turkish consumer satisfaction is based on the price and value insights of the products’ features as per customer analysis that have been conducted. Also, in Turkey, customer service is essential but does not determine the consumers’ loyalty.
The income growth in Turkey has been deteriorating between 2015 and 2016 affecting the purchasers’ expenditure. This is due to political and economic improbability. However, the nation’s youthful and growing populace is predicted to improve and enhance the country’s economy in upcoming years. Online shopping has significantly grown due to the high use of internet and social media. Safety anxieties and customary habits keep many consumers from physically shopping in the congested shops.
The main mode of transport in Turkey is road transport. Other means of transport have been developed in cities like Istanbul and Ankara. The modes include buses, metros, dolmus and ‘Metrobus’. The use of social networks in transport like Uber has deteriorated due to safety reasons. Also, the high product prices on electricity, gas and household products is straining residents’ budgets compelling them to change their spending habits.
Foreign Investment in Turkey
Turkey is among the world’s developed nations. Turkey’s economy is a developing market and is among the world’s recent industrial nations. The country is at 19th position worldwide with the largest nominal income and 13th largest Gross Domestic Product based on its Purchasing Power Standard. Turkey is one of the world’s prominent producers of textiles, motor vehicles, transportation and construction equipment, electronics and agricultural products.
Turkey has a growing economy and is strategically located at Europe and Asia’s intersection. This attracts many foreign investors as the region promotes trade between some countries in Asia and Europe. The country is a centre for trade and large businesses. Turkey’s young populace provides workforce for businesses as majority of the people are below 30 years. Every investment comes with its risks and rewards and investors should thoroughly consider these before investing in any sector.
The advantages of Foreign Direct Investments (FDI) in Turkey are many. Turkey has a large market of over 70 million consumers. The large market attracts many investors in different sectors. The Turkish government is also open to new investments that would benefit the country and boost its economy. European guidelines and trade standards have been formed due to Turkey’s repetitive efforts to join the European Union. This has resulted in freeing up Turkey’s economy. The Turkish government is operating to draw FDI into technology, telecommunications, textiles, electronics and bio-technologies. Also, the government wants to attract FDI into services such as education, public transport and health in addition to shipbuilding and textile industries.
Furthermore, the Turkish populace has a high purchasing power and consumption due to most purchasers being in the young middle class population. The country’s strategic position is highly favourable for trade and investments as it is a regional centre between Europe and Asia. The country also has low labor costs for the workforce is large hence employment is available.
There are also risks present when investing in Turkey. The administrators and authorities can be hard to get through. There are regular alterations in the legal and governing environment making it hard for foreigners to keep up. Turkey’s economic and political growth has reduced in the recent years making some investors hesitant because of uncertainty. Also, the country’s currency has lowered in value and the inflation rates heightened. There is improbability in the exchange rates and effects of public debt is continuously rising. There is unease and political conflicts because of being in the vicinity of clashes between Iraq and Syria increasing insecurity probabilities.
There are many investment opportunities in Turkey. In 2019, Turkey changed its investment inducements to boost and support investments in particular sectors. The areas that draw high FDIs in Turkey include energy, finance and manufacturing sectors. The largest number of investors in Turkey are in the European Union particularly UK, Netherlands and Luxembourg. The first largest investor in Turkey is Netherlands while the United States comes second. The developing sectors in FDI include infrastructure, agriculture, real estate, automotive, chemicals, ICT, civil aviation, luxury commodities and telecommunications.
Sociocultural Acceptance of Products
It is important for foreign firms and investors to consider the cultural and social diversities in Turkey. The cultural and social diversities affect the marketing strategies of a company. Reduced tariffs rates in Turkey has increased the flow of international trade. Although the trade barriers have been reduced, it is not easy for international firms to penetrate the local markets. The cultural barrier makes it challenging for foreign businesses to succeed. It is important for firms to look for appropriate markets for their products as some cultures are sensitive to some products.
Understanding the people and their culture is important for the success of a foreign firm. Getting to know how the residents conduct their businesses is also important. Examining the Turkish business ethics and culture would help in knowing how to conduct a business with the people. By understanding and acknowledging their culture and etiquette, one gains respect from the Turkish people.
Local firms are eager to work with international enterprises and markets due to local competition, fulfilment in the foreign markets’ products, globalization and features like improved technology from foreign markets. Cultural aspects are seen in various sectors. For example, food shopping in Turkey is mostly done by women as it is their responsibility. Local street markets are considered cheap and with a large variety of fresh products for consumers. Majority of people in Turkey consume street markets’ products. The most important aspect that consumers look for before buying organic products is cleanliness of the place and the seller’s hygiene. However, accessibility of vegetables is determined by area of residence thus affecting its price.
The Legal and Bureaucratic Environment in Turkey
When a foreign firm wants to set up a limited liability company or private company, there are set processes to follow. The registration for companies or firms should be done through MERSIS, the country’s Central Trade Registry System. This is carried out online and the business owners are required to submit their memo and documents of incorporation. The system would then provide a temporary identification number (TIN) for the new company. The registration for the company is to be done at the Trade Registry Office where documents required for the registration process are to be presented. Also, the company’s registration fees must be paid at the Trade Registry Office.
A tax credential should then be acquired at the regional Tax Office which would allow the company to deliver invoices and conduct business transactions. The new company managers should attain an authorized signatory list of managers’ document from a notary that will allow the company to be involved in corporation with third parties like banks and other firms. In the Tax Office, the temporary identification number would be made permanent. Other documents like the company’s registration document, the manager’s identification card and rental pact of the company’s office are also required. The company’s registration will complete when the Tax Officers visit the company’s workplace then prepare a report. The tax certificate would be given on the same day or the next.
Private companies are allowed to sell any products or services. A lease agreement can be signed in a week and clients invoiced in three weeks. It takes about three weeks to supply company registration and tax numbers. Also, the company can start signing sales contracts and hiring employees three weeks after its registration. The corporate tax rate on annual profits should be 20 percent. There is no government approval required for foreign investors or owners as long as they have the required papers for business.
Both local and foreign business owners in Turkey can bid for government contracts. The company can secure trade finance either through bank loans or bonds after its registration. The tax payable on sales (VAT) to local customers is 18 percent. When the company is registered, it can receive government grants and incentives. It should take the newly registered company a month to provide corporate bank numbers. The standard engagement costs for the setup of the company should be 13,710 euros. The company should have a standard employee engagement period of two months. This comprises of the right conditions required at the workplace for the employees to give their best.
There are several legal amendments in place to ease the functioning of foreign investments. The Investment Support and Promotion Agency of Turkey (ISPAT) was created to display the determination and efforts carried out to attract foreign investors. FDI influx has improved the development of infrastructure in Turkey. Turkey’s ease of doing business was recorded as the 33rd out of 190 economies according to World Bank’s Doing Business Report 2020. The country is up from the 43rd position in the previous year. Tax payments adjustments have currently helped the country rise in ranking.
Competition in the Market
The main competitors for FDI development in Turkey is Eastern Europe, North Africa, Russia, Asia, Western Europe and Greece. Turkey competes with other neighbouring countries with the same geographic location and similar degree of economic development. Middle East is excluded from competitors because of poor political relations with Turkey and lack of economic incorporation.
The FDI countries in Turkey from the highest rate of investment include Azerbaijan, United Kingdom, Germany, United States, Spain and Belgium. The main invested sectors in Turkey are Retail and wholesale trade, energy, finance and insurance, transport and storage, and chemical industry. In accordance with the Turkish Treasury Ministry, about 18,000 firms are established in Turkey and in which around 10 percent of the capital is retained by foreign units.
Economic and Political Climate for Foreign Businesses
There have been some drastic shifts in Turkey’s business climate over the years. The country has undergone various financial and economic crisis during the year 1994, 1999 and 2001. The crises were due to poor macroeconomic management, political instability and weak regulation. However, the country has dramatically progressed in the economic sector attracting many investors.
The GDP has been growing by 7 percent on average every year from 2002 to 2006. The growth was significantly due to the private sectors of business. This led to the growth of fixed private investments and capital stock. The fixed investments was growing by 24 percent every year from 2002 to 2006. This improved the workforce in the country and helped firms grow. However, in 2007, the growth decelerated to about 5 percent. The Turkish government introduced some grand 2007-2012 economic plans that would aid in tackling some challenges in the business and economic sector.
The country is dependent on FDI inflows as foreign proprietorship on local bonds and equity markets have been rising yearly. Turkey’s large current account deficit is progressively steadying to below 8 percent of GDP. This however will continue being a microeconomic risk in the coming years as the rate of inflation rises and the Turkish lira is unsteady at the currency rates. There is also high private sector debts and foreign exchange risk. The debts in the public sector have been decreasing over the years. The corporate sector’s net short foreign exchange rank has been increasing yearly hence the corporate sector is at risk to the decline of the Turkish lira.
Additionally, there is high unemployment rates even with the high economic growth over the years. The government has failed to reduce the unemployment rates to below 10 percent. Most low level education graduates find it hard to get employed as the high level graduates are given the priority. About 40 percent of Turkey’s economy consists of the informal economy which is a huge problem.