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The Challenges of European Companies Making Investment in Turkey

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The Challenges of European Companies Making Investment in Turkey

Table of Contents

1. Introduction 3 2. Situation 4 3. Problems, Solutions and Implıcations 4 3.1, Bureaucracy and Governmental Difficulties 4 3.2, Human Resource Difficulties 5 4. Evaluation 6 5. Conclusion 7 6. List of References 8

1. Introduction
Foreign direct investment (FDI) is a type of investment, which refers to the investment made in a foreign country and therefore is a crucial ingredient of a successful economy, especially for developing countries. In recent decades, communication between developing and developed world has increased dramatically. Similarly, the world trade rose significantly. According to the UNCTAD’s Global FDI Index (see Figure 1), foreign direct investment of European Countries increased 18 times between 1980 and 2013. Under these rapid changes, in order to gain economic advantages, countries are trying to attract more and more foreign investment. For instance, in the last decade Turkey has shown huge development in FDI and is now the 18th largest economy in the world. In addition, 70% of the total foreign direct investment of Turkey is coming from European Countries. For these reasons, Turkey is expected to be the new economic hub for the European economies and this makes Turkey an ideal investment location. This essay will first demonstrate the current status of Turkey and then examine two obstacles of entering in Turkish market and investing in Turkey. In the final part these two problems will be discussed and evaluated by indicating case studies, reliable resources and/or statistics.
Figure 1: Foreign Direct Investment of European Countries Between 1980-2013

2. Situation
In addition to candidate country status to the European Union, Turkey has several economic key memberships such as World Trade Organization (WTO), D-8, Economic Cooperation Organization (ECO), Organisation for Economic Co-operation and Development (OECD), Organization of the Black Sea Economic Cooperation (BSEC), International Monetary Fund (IMF) and World Bank. Surrounding by four different sees, Turkey links Europe to Asia and the Middle East.

Mr. Kilicdaroglu, the chairman of the main opposite party – CHP, has announced party’s new economic project, which is going to focus on Turkey’s strategic importance. Mr. Kilicdaroglu argues that within the Project – Central Turkey, with a 5 hours flight to a population of 1.5 billion people and to a market of 21.6 billion USD is going to be accessible (The Hurriyet Daily News, 2015). Moreover, Turkey has a rising economy with a growing and productive young generation and might be the one of the next economic giants after BRIC countries (The BBC, 2015). Ellyatt questions in her article, whether Turkey will be the China of Europe and states that Turkey's economy was the fastest growing economy in Europe in 2011 (CNBC, 2013).

3. Problems, Solutions and Implıcations
3.1, Bureaucracy and Governmental Difficulties
While European companies are attracted to invest in Turkey, there are some obstacles. Some investors have concerns about governmental limitations. For instance, in some sectors foreign companies are not allowed to attend to a bid due to the competition condition. Further, the political and economic uncertainty in Turkey doubts some foreign companies. Mr. Erdogan, the president of Turkey, has been accused of being a dictator by some groups. Moreover, political risks damage the Turkish economy, which was very inspiring in the last decade for most countries. Dombey states that the Turkish Lira has lost 10% of its value against US dollar in this year and concludes that the concerns mainly focus on the president Mr. Erdogan (The Financial Times, 2015). On the other hand, it is generally believed that finding a local partner or a buying local company avoids the risks which are originated by the local issues. Personal relationships are important in Turkey, especially when working with the government. Telsim, Turkish mobile operator, was taken over by Vodafone in 2005. As Timmons mentions that there were firstly grave concerns about entering to Turkish Market but later on Vodafone was very successful in Turkey (The New York Times, 2005).

However, some people believe that in emerging economies, entering to market with a local partnership involves too many risks because of uncertain situations. In 2003, Tesco entered to the Turkish market with the acquisition of Kipa, a supermarket chain in Turkey. However, as Ruddick mentions in his article, the board of Tesco was not satisfied about the Tesco Kipa operations and wanted to leave the market (The Daily Telegraph, 2014). Kandemir states that Turkish families- especially in country sides, tend to buy from local shops, bazaars or family business. Therefore, Tesco’s growing plans in the Anatolian side of Turkey had obstacles (The Reuters, 2014).
3.2, Human Resource Difficulties
Turkey has a young generation, which is very hardworking and competitive, however the lack of international experience and academic background are among the problems of young people in Turkey. A study shows that the Turkish students at EF Education First, an English-teaching company, are in the bottom five among 44 different nations. Philip Hult, co-chairman of EF, hypothesizes that this study is very similar to the survey which was held by the British Council (The Economist, 2015). Apart from this, Turkish Universities are not so well ranked in the prestigious ranking systems such as The Guardian, The Financial Times, The QS World or The Times Higher Education. There are very few universities, which are able to find a place at the top 500 universities in the world. In addition, according to Pisa 2012 Results, an international survey which measures the education systems worldwide, Turkey is ranked 44rd among 65 countries.

In recent years, global exchange programs are getting more and more people across the countries. Ernst & Young is the one of the global companies which offers this opportunity to its employees. According to data published by EY, 167,000 people are taking part of this opportunity. This helps companies to educating their employees without any additional cost. For instance, Turkish employees could work for several years abroad to develop new skills, practice English and experience the international business life.

On the other hand, these employees might not want to return to the company. SME’s are eager to catch young talents by offering higher salaries. Another possibility for these employees would be to continue to work abroad.

4. Evaluation
Consultancy firms offer services across the many areas of business such as human resource, marketing, finance or law. Consultants can help business partners to improve their performance and productivity by analysing the organization, management or market and providing solutions. Moreover, these firms save money and time to their clients. However, finding a successful business partner could be difficult in developing countries but Turkey is not one those countries because many international consultancy firms are located in Istanbul such as Accenture, Boston Consulting Group, Deloitte, Ernst & Young, KPGM, McKinsey or PwC. Skilled employees are rare in developing countries and this makes these people very precious in the market. Some professionals might change their decisions after gaining valuable skills and experiences and want to work in a different organization. This threat can be eliminated by negotiating with the employee on working together for certain years so that the employee cannot easily cancel the employment agreement.

5. Conclusion
As Marshall McLuhan states in his book The Gutenberg Galaxy, “The world is a global village”. In the borderless world, individuals, companies and countries are investing more and more in different countries. Turkey is one those countries, which are becoming more investment friendly in comparison to previous decades. The factors behind this are Turkey’s geographical location, strong economy and young generation. However, absence of international culture in the labour force and restrictions of local authorities are the limitations. On the other hand, Turkey has an ambition to be a new global economy. The companies, which move their production base or headquarters to Turkey, are going to gain an influence on Asian and Middle Eastern markets and huge economic advantages in the nearest future.

6. List of References

Dombey, D. (2015, May 5). Turkish lira hit by political risk concerns - Retrieved August 9, 2015, from

Ellyatt, H. (2013, January 18). Can Turkey Become 'the China of Europe'? Retrieved August 9, 2015, from

Ernst & Young - Your development - Mobility. (n.d.). Retrieved August 9, 2015, from

Hurriyet Daily News | Haber Detay. (2015, May 21). Retrieved August 9, 2015, from

Kandemir, A. (2014, May 27). UK's Tesco says ends talks on Turkish business. Retrieved August 15, 2015, from

PISA 2012 Results in Focus. (n.d.). Retrieved August 16, 2015, from

Ruddick, G. (2014, May 27). Tesco scraps plan to sell Turkish stores. Retrieved August 9, 2015, from

The Mint countries: Next economic giants? (2014, January 6). Retrieved August 9, 2015, from

UNCTAD Beyond 20/20 WDS - Chart view. (n.d.). Retrieved August 9, 2015, from

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