A deep market analysis of the Turkish market in order to open a luxury ready to wear clothes shop.

1.
INTRODUCTION ............................................................................................................................................... 3
I. PRESENTATION OF THE COUNTRY: .................................................................................................. 4
1. OVERVIEWS: ............................................................................................................................................................... 4
.
2. GEOGRAPHY AND CLIMATE ...................................................................................................................................... 4
.
3. DEMOGRAPHY ............................................................................................................................................................. 5
a. General characteristics ....................................................................................................................................... 5
b. Distribution of wealth: ........................................................................................................................................ 5
c. Middle and upper class potential: .................................................................................................................. 5
.
d. Urbanization: .......................................................................................................................................................... 6
e. Level of education: ................................................................................................................................................ 6
.
f. Alphabetization rate: ............................................................................................................................................ 6
g. Employment ‐ Unemployment: Men/Women ............................................................................................ 6
h. Structure of household’s expenditures: ........................................................................................................ 7
i. Health and life expectancy: ................................................................................................................................ 7
II. INFRASTRUCTURES ............................................................................................................................... 8
1. TRANSPORT ................................................................................................................................................................ 8
.
a. Road ............................................................................................................................................................................ 8
b. Railroads ................................................................................................................................................................... 8
d. Air ................................................................................................................................................................................. 9
2. INFORMATION AND COMMUNICATION TECHNOLOGIES ...................................................................................... 9
3. RAW MATERIALS ..................................................................................................................................................... 11
4. ENERGY AND TECHNOLOGY ................................................................................................................................... 12
III. POLITICAL ENVIRONMENT ............................................................................................................ 12
1. INTERNAL POLICY ................................................................................................................................................... 12
a. Political and administrative framework .................................................................................................. 12
b. Internal stability ................................................................................................................................................. 12
c. Turkish government .......................................................................................................................................... 13
d. Local administration ........................................................................................................................................ 13
.
e. Socio‐economic tension .................................................................................................................................... 13
2. EXTERNAL POLICY .................................................................................................................................................. 14
.
a. Relationship between Turkish and European Union .......................................................................... 14
b. The Iraqi and Syrian issues ............................................................................................................................ 14
c. The “Arab Spring” issues .................................................................................................................................. 14
3. LOCAL GOVERNMENT ............................................................................................................................................. 15
a. Environmental polity ........................................................................................................................................ 15
b. Social and health development .................................................................................................................... 15
c. Stability policy ...................................................................................................................................................... 15
IV. ECONOMIC ENVIRONMENT ............................................................................................................. 15
1. STATE FINANCE ....................................................................................................................................................... 15
a. Turkey GDP Growth Rate ................................................................................................................................ 15
b. Middle class in Turkey: ..................................................................................................................................... 16
e. Trade balance: ..................................................................................................................................................... 18
f. Public debts: ........................................................................................................................................................... 18
g. Inflation rate: ....................................................................................................................................................... 19
2. MONETARY POLICY ................................................................................................................................................. 19
a. Interest rate: ......................................................................................................................................................... 20
b. Exchange rate: ..................................................................................................................................................... 20
3. FISCAL POLICY ......................................................................................................................................................... 20
a. Corporate tax ....................................................................................................................................................... 20
b. Consumption tax: ................................................................................................................................................ 20
c. Special Consumption Tax ................................................................................................................................ 21

2.
d. Individual tax ....................................................................................................................................................... 21
4. LEGISLATIVE CONTEXT AND TRANSACTION COST ............................................................................................. 21
a. Market access and world trade organization ........................................................................................ 21
b. Custom duties ....................................................................................................................................................... 22
c. Tax exemptions .................................................................................................................................................... 22
d. Foreign Direct Investment in Turkey ......................................................................................................... 23
e. Intellectual property right .............................................................................................................................. 23
f. Corruption .............................................................................................................................................................. 23
g. Company establishment and needed certificates ................................................................................. 23
V. PROFILE OF THE TARGETED MARKET ......................................................................................... 24
1. POTENTIAL AND SIZE OF THE MARKET ............................................................................................................... 24
a. General .................................................................................................................................................................... 24
b. Consumer pattern .............................................................................................................................................. 24
.
c. Istanbul ................................................................................................................................................................... 24
.
d. Competition ........................................................................................................................................................... 24
2. TEXTILE MARKET IN TURKEY ............................................................................................................................... 25
a. General .................................................................................................................................................................... 25
b. Fashion in Istanbul ............................................................................................................................................ 25
VI. EMPLOYMENT DETAILS ................................................................................................................... 25
1. WORKING CONDITIONS .......................................................................................................................................... 25
2. LEGAL HOLIDAY AND PAID LEAVE ........................................................................................................................ 26
VII. COUNTY RISKS MANAGEMENT .................................................................................................... 26
1. GENERAL .................................................................................................................................................................. 26
a. Rating country ..................................................................................................................................................... 26
b. Business environment ....................................................................................................................................... 26
c. Turkish market .................................................................................................................................................... 26
2. TYPE OF COLLABORATION ..................................................................................................................................... 27
3. LOCALIZATION OF INVESTMENT ........................................................................................................................... 27
4. INSURANCE ............................................................................................................................................................... 27
VIII. COMMUNICATION ........................................................................................................................... 28
1. MEDIA ....................................................................................................................................................................... 28
a. Print media ............................................................................................................................................................ 28
b. Internet Radio Television and Cinema: ..................................................................................................... 28
2. BARRIERS ................................................................................................................................................................. 29
3. SPONSORSHIP .......................................................................................................................................................... 29
4. STRATEGY ................................................................................................................................................................. 29
5. POSITIONING ............................................................................................................................................................ 29
IX. CULTURAL ASPECT ............................................................................................................................ 30
1. GENERALITIES ......................................................................................................................................................... 30
c. Language ................................................................................................................................................................ 30
d. Religion ................................................................................................................................................................... 30
2. BUSINESS CULTURES .............................................................................................................................................. 30
3. NEGOTIATION .......................................................................................................................................................... 31
4. APPOINTMENTS ....................................................................................................................................................... 31
CONCLUSION ................................................................................................................................................ 32
.
BIBLIOGRAPHY ............................................................................................................................................ 33
.
APPENDIX LIST ............................................................................................................................................. 35
2

3.
INTRODUCTION
When a company decides to export its product in another country, the choice has to be made
carefully. Emerging countries are promising markets for the investors and represent a great
opportunity to enlarge their activities and profit.
Making decisions to enlarge business and investing in a new marketplace can be a risk, because
of a lack of information, and launching on a new market signifies also adapting another way to
negotiate your business.
By and large, emerging countries are characterized by a high economic growth rate and a great
development potentiality. However, to be more realistic before investing to a new area, it will be
important to analyze the country by taking into account several economic indicators, such as;
the GDP, the wealth per inhabitant, the solvency, the policy, the legal environment and the level
of corruptions of the country.
Given that, the republic of Turkey is known as candidate of European Union, with a fast growing
economy with low production costs and cheap labor force during last decade. Consequently,
Turkey is a good model to illustrate the analysis of an emerging market and avoiding risks
occurred in the country.
In order to implement a shop selling up market Belgian brand Essentiel Istanbul, one of the most
dynamic cities of Turkey, appears as a relevant choice.
Throughout this work, we will analyze all the factors that a foreign investor should take into
account. We will also attempt to answer fundamental questions such as: how to approach an
emerging market? How to manage its instability? How to face the cultural gap?
3

4.
I. Presentation of the country:
1. Overviews:
Turkey’s dynamic economy is a complex mix of modern industry and commerce along with a
traditional agriculture sector that still accounts for about 25% of employment. It has a strong
and rapidly growing private sector, and while the state remains a major participant in basic
industry, banking, transport, and communication, this role has been diminishing as Turkey’s
privatization program continues.
The largest industrial sector is textiles and clothing, which accounts for one‐third of industrial
markets with the end of global quota system. However, other sectors, notably the automotive
and electronics industries are rising in importance and have surpassed textiles within Turkey’s
export mix.
Real GDP growth has exceeded 6% in many years, but this strong expansion has been
interrupted by sharp declines in output in 1994, 1999, and 2001. Due to global economic
conditions, GDP fell to a 0.9% annual rate in 2008, and contracted by 6% in 2009. Inflation fell to
5.9% in 2009 –a 34‐ year low.
Despite the strong economic gains from 2002‐2007, which were largely due to renewed investor
interest in emerging markets, IMF backing, and tighter fiscal policy, the economy has been
burdened by a high current account deficit and high external debt.
Further economic and judicial reforms and prospective European Union membership are
expected to continue boosting foreign direct investment.
The stock value of FDI stood at more than $ 180 billion at year‐end 2009. Privatization sales are
currently approaching $ 39 billion.
In 2007 and 2008, Turkish financial markets weathered significant domestic political turmoil,
including turbulence sparked by controversy over the selection of former foreign Minister
Abdullah GUL as Turkey’s 11th president and the possible closure of Justice and Development
Party (AKP).
Turkey’s financial market and banking system also weathered the 2009 global financial crisis
and did not suffer significant declines due to banking and structural reforms implemented
during the country’s own financial crisis in 2001. Economic fundamentals are rigorous, but the
Turkish economy may be faced with more negative economic indicators in end 2011 ‐ 2012 as
the global economic slowdown continues to curb demand for Turkish exports.
In addition, Turkey’s related to policy‐making, and fiscal balances leave the economy vulnerable
to destabilizing shifts in investor confidence.
2. Geography and climate
The Turkish superficies is about 780,000Km2. The European part of the territory is 24,378 km2.
Its highest mount (Agri) has an altitude of 5,165 meters. The Turkish seacoasts represent
around 8,000 kilometers.1
Thanks to the Turkish geographic localization, it is considered like a border between European
countries (Russia – Mediterranean and Balkans) and Asian countries (The Middle‐East). Turkey
is a link between occidental and oriental world. Then it represents a geostrategic localization.
The existing pipelines and related projects between Europe en The Middle‐East are great
examples.
1 http://www.bibliomonde.com/donnee/turquie‐territoire‐112.html
4

5.
Concerning our project, Turkey would represent a great export platform in order to expand our
activities through economic potential areas such as Russia, Bulgaria, Rumania and the Middle East.
The Turkish weather in the West is great during the summer and should not fall under zero
during the winter, keeping the roads usable. Therefore it should not represent a risk for
transportation.
However, the western part of Turkey is known to have regular earthquakes that should be taken
into account.
3. Demography
a. General characteristics
The Turkish population reaches 76.81 millions in 2010 with a population growth rate of 1.31%2.
The death rate of the population is 6.1 deaths/1.000.
The ethnic proportion is 70‐75% Turkish, 18% of Kurdish, 7‐12% of other minorities.
Age structure is the following:
0 ‐ 14 years: 27.2%
15 – 64 years: 66.7%
65 years and other: 6.1%.
b. Distribution of wealth:
The richest 10% of the population get 31.3% of the total incomes. The richest 20% get 47.1% of
the total. While the poorest 20% get only 5.4% of total incomes3.
The GINI coefficient of Turkey, for urban areas is 41.That means big disparities. As an example,
the most unequal countries (as Brazil, Guatemala, Honduras…) have a coefficient of 604.
c. Middle and upper class potential:
In big cities, 12% is classified upper class, and 30% middle‐class. As an example, Istanbul’s
population reaches 12.7 millions. The addition of upper and middle‐class populations reaches
more than 5 millions.
The purchasing power of the population in term of PPP was $13,9055 in the end 2009 despite
the global economic conditions.
This part of the urban population is an interesting consuming base making big cities good
market seeking for investors.
As an example, Turkey is up to seven times the Belgian market size. That’s why Turkey is
considered as an extremely dense market. Population is mainly young with an average of 26
years old. Considering this and the next information about the level of education, and focusing
on big cities where the investments are likely interesting, it could be attractive for investors on
both points:
o The possibility to find alphabetized Turkish employees to work as sellers or in other
posts, keeping in mind that young people could be more flexible about working hours or
salaries than other people who already have founded a family.
o In a long‐term context, a growing consumer base, characterized by its level of purchasing
power due to the level of qualification of the population.
2 Databank of the World Bank
3 World Bank 2006
4 Turkstat 2007
5 http://www.worldbank.org/
5

6.
d. Urbanization:
Turkey is characterized by huge cities in which urban concentration is very high. Indeed, 69.1%
of the population is based in the big urban areas of the country 6.
Main cities are:
Istanbul: 12,782,000 inhabitants
Ankara (capital): 3,700,000 inhabitants
Izmir: 3,200,000 inhabitants7
e. Level of education:
The Turkish national education system designed to meet the educational needs of individuals, is
composed of formal and non‐formal education, which complement each other. Formal education
includes pre‐school education, primary education, and secondary education and higher
education institutions.
Turkey has a high‐quality education tradition coming through the history. Today there is 8 years
compulsory primary education, which is being carried out for more than ten years. This
obligatory education sharply increases moderate rate.
The higher education, the ceiling of education, is under the authority of the Board of Higher
Education (YOK), which has administrative autonomy that saves it from political fluctuations.
In 2009, 450,000 qualified students from universities and 550,000 bachelors were adding at the
total Turkish workers.
When we make a link between those figures and the 67% of population from 15 to 64 years old,
we can observe that only 0.9% of them get a university degree and 1.1% of them get bachelors
degree in one‐year time. This is not a lot in comparison with Belgium.
So, currently we can’t consider Turkish labor force as qualified, but as an alphabetized
population turning to a qualified population.
However, the OECD criticized several times the Turkish education system because it focuses on
the best students and advices them to follow further studies instead of giving access to
education to the widest range of the population.
Considering the graph of EUROSTAT in appendix 1, we can observe that Turkey stands out from
other countries by the qualification of his labor force.
f. Alphabetization rate:
The alphabetization rate, for adults from 15 years and more, is 89%.
Considering the young part of the population (the majority population, constituting our main
target) between 15 and 24 years old, alphabetization rate reaches 96%8.
 It demonstrates that the youth takes precedence over past generations.
92% of the girls finish primary education, against 95% by the boys.
The subscription rate (net) in secondary education is 74% (2008)
The gross subscription rate in high schools is only 38%. (2008)
But we have to emphasize the positive evolution of these figures (37% in 2007, 35% in 2006,
32% 1n 2005).
g. Employment ‐ Unemployment: Men/Women
6 Turkstat 2009
7 Data 2007
8 Chiffres de 2007 mis à disposition par la banque mondiale
6

7.
10,5
10
The unemployment rate for the active
9,5
population is 9.4%. It is interesting to notice the Tx
9
positive slowdown of the unemployment rate
from 2005(10.3%)9. 8,5
2005 2006 2007 2008
An alphabetized labor force, cheap (US $102009; 430 gross a month for a worker, more or less
US $855 for a higher function) and important sized, with 24.7 millions of professionals, the
volume of the Turkish labor force makes it reach the 5th rank in Europe.
h. Structure of household’s expenditures:
Appendix 2: We can see here that the most important expense item is housing and rent 28.2%.
The lowest expense items are education, health, culture and leisure. Unfortunately, we have to
notice the importance of such expense items if we want to enhance the Turkish development
and facilitate the growth of the purchasing power.
Appendix 3: We see that in 2007, the average of monthly consumption expenditures of
households reached $946 in total. For the clothing and foot wear item, it’s 6% of the total, that’s
more or less worth $57.
That’s why we have to understand that, even if mode and fashion wearing attract Turks, only the
richest is able to afford luxury clothes.
i. Health and life expectancy:
The total average of life expectancy for men and women is 72 years old10.
Theoretically, the Turks can live old considering their health.
Children mortality is high (19% in 200911), but slowing down from 2005 (25%).
j. Characteristics of big Turkish cities:
Istanbul: 7700 inhabitants per sq. km (the highest in Europe)
Main cities:
Istanbul: 12,7 million inhabitants.
Ankara (capital): 4,4 million inhabitants.
Izmir: 3,7 million inhabitants
Evolution or rural population and urbanization rate
The urban population went through a real “boom” from the 60’s to finally stabilize itself during
9 Banque Mondiale chiffres 2008
10 Unicef 2008
11 World Bank
7

8.
the 90’s.
Turkey is a country of big cities since 90% of urban population is living in agglomeration of
100.000 inhabitants and more and 37% in cities with more than one million inhabitants.
The conversion of farmers to more modern activities increases the weight of the big cities, in
terms of percent of the total urban population.
The share of the Istanbul’s agglomeration reaches 22% of total urban population.
However, with the economic development of Turkey, the population tends to spread to the
periphery. Istanbul still attracts 1/3 of foreign investments and is considered as the financial,
commercial and supply center of Turkey. But Istanbul has also to face difficulties, for example,
the big disparities of wealth in the population, but also the pollution, the traffic jams, the urban
violence and the housing problems12.
The economic concentration is clearly located in the west of the country. The 3 main cities are
Istanbul, Izmir and Ankara. They all went through the same evolution and face the same
problems, except the fact that Istanbul is laying at the first rank for all points: biggest potential
market with high qualification of the labor force, the most developed infrastructures, but also
higher rents ant the big cities problems that could be disadvantageous for investors.
Istanbul and Izmir have both maritime accesses. (Cf. appendix 4)
II. Infrastructures
1. Transport
Turkey lies between Asia and Europe serving as a bridge geographically, culturally and
economically. Its location on two continents plays a central part in Turkish history and gives the
country’s transportation and logistic sector a major advantage in serving the markets of Europe,
the Middle East and North Africa.
Investments in the transportation system concentrated on land transportation infrastructure
and Turkey has developed one of the largest land transportation fleets in Europe.
a. Road
The network of highways has been developed and the relative importance of highways has
increased. The highway length has reached 64.033 kilometers including 88% of paved roads of
which 2.010 are motorways13. Road transportation represents less than 30% in 201014. Since
2000, the authorities have launched several large investment programs to improve the road
network through the country, and reduce traffic problem in Istanbul and Ankara.
The motorway network mainly surrounds big cities such as Istanbul and Ankara. It also links
both of these cities and it allows commuting Istanbul and Ankara in 5 hours. It takes about 7
hours to commute both of Istanbul – Izmir and Ankara – Izmir.
b. Railroads
The railways are state owned and operated. Investments in this sector have been aimed at
improving standards so that rail transport can become a competitive alternative to road and air
transport. Companies can transport their goods from Turkey to European countries, the Middle
East and CIS countries by railway.
The length of railways in Turkey is 10,991 kilometers, of which 2,274 are currently electrified. In
2007, 3,1 million tones of cargo were transported. In terms of its rolling stock fleet, Turkey State
Railways has 472 mainline locomotive, 58 shunting locomotive, 44‐diesel railcar, 67 electric
locomotive, 83 electric railcar, 1985 freight wagon and 1,010 passenger coaches. The harbors in
12« OECD Territorial Reviews » Publication of the OECD
13 http://www.turkstat.gov.tr/PreIstatistikTablo.do?istab_id=352
14 Cf. appendix
8

9.
Turkey are connected to railways so that companies are able to carry goods by combined
transport.
c. Maritime 15
Turkey, a country surrounded by sea on three sides, places great emphasis on port development
and sea transport. The seacoasts of Turkey stretch for 8,333 kilometers. Currently, Turkey owns
56516 commercial boats and has 69 ports, wharves and quays. The main ports are in Istanbul,
Izmir, Samsun, Trabzon, Mersin and Iskenderun, which provide modern facilities with advanced
infrastructures.
As the importance of RoRo (ship which transports vehicles) transportation increases, the usage
and number of RoRo ships in transportation are also rising. In 2007 130,391 shipments were
made and 348,213 trucks were carried by Ro‐Ro transportation. The RoRo lines that Turkish
companies serves are; Istanbul – Italy, Istanbul Ukraine, Samsun – Novorossisky (Russian
Federation), Trabzon – Sochi (Russian Federation), Rize – Poti (Georgia) and more.
d. Air
Turkey has airports handling international and domestic flights; the major international
terminals being Istanbul (Atatürk), Ankara (Esenboga) and Izmir (Adnan Menderes), Adana,
Antalya, Trabzon, Nevsehir‐Kapadokya, Dalaman, Milas‐Borrum and Isparta are major flight
points.
According to the General Directorate of State Airports Authority the number of landings was
653.317 and the 402.039 tones of cargo was transported by airway in 2008.
In additional due to the repairs and maintenance services at all airports, the number of
international airlines operating in Turkey is increasing each year.
Advice: Focusing on a simple exportation project concerning Belgian Fashion’s goods
transportation to Istanbul, the best value for money is a combination of road and maritime freight.
Indeed, from Brussels to the port of Genoa17 , in Italy, the transportation will take place by road.
Secondly, from Genoa to Izmir or Istanbul18, we will use maritime transportation. Thus, we will save
money and time. We can actually expect a 6‐day freight to carry goods from Brussels to Istanbul.
2. Information and Communication Technologies
Turkey’s Information and Communication Technologies (ICT) market which includes
telecommunications equipment, computer and related equipment, electronic components, audio
and video equipment, and other ICT goods such as word processing machines, calculating
machines, accounting machines, parts and accessories, was anticipated to reach around US$ 31
billion in 2008, up from the US$ 25.7 billion for 2007 which was nearly 4% of GNP in 2007. The
growth rate of Turkish ICT market was estimated 20% at the end of 2008. The share of
information technologies in this market is US$ 7.9 billion while that the communication
technologies US$ 23.1 billion. Turkey’s IT market which includes computer hardware, computer
software, software services and consumer equipment, was estimated to reach US$ 7.9 billion by
the end of 2008, up from 6.7 billion in 2007. Turkey’s software market reached US$ 2 billion in
2009, up from 1.6 billion for 2008. Turkish software industry’s growth rate was 28.5% in 2008
and is expected as 20% in 2009.
15 http‐//www.igeme.gov.tr/english/turkey/pdfView.cfm?subID=2
16 https://www.cia.gov/library/publications/the‐world‐factbook/
17 1090 Km
18 5 days
9

10.
Technological innovations:
2.2% of the GDP was invested in R&D in 2007
There are 680 researchers in R&D for a million habitants.
17.3% of exported manufactured goods are high technologies in 2007 (23.1% in 2000) 988,514
applications for a patent in 200619
12.5% of imports are ICTs20
15.3% of the populations have a computer21
80.1% of the population is reachable through the phone network
3.2% of the GDP comes from the ICTs in 2009
4.5% of the GDP is invested in the ICTs in 200922
Comment: For an emerging country, Turkey can be considered as innovating in term of technologic
speaking. 2.2% of the GDP for new technologies is not so wicked. Then there will not be a problem
to provide new technologies equipment in Turkey.
It is worth mentioning that the Turkish software market has experienced double‐digit growth
over the past years.
Turkey’s ICT export grew rapidly over the years, contributing to the Turkey’s substantial
economic performance. Export of Turkey reached nearly US$ 4.1 billion in 2008. The major
export markets were the UK, Germany, France, Romania, Italy, Spain, the Netherlands, Iraq, the
USA and Syria.
Telecommunication
Available technology (figures in appendix 5)
Appendix 6: Turkey is almost last standing following the ICT development indicator23.
This market does not provide us a multiple choice of communications media.
Thus, we will either have to contribute to the development of the ICT sector in Turkey, trying to
launch media awareness dynamics; either opt for more traditional media (by word of mouth, by
building of long term relations with customers and the confidence climate and reputation that
ensues from it). We have to notice here that the size of the Turkish population, even if
penetration rates could be higher, makes it an interesting ICT potential market for investors.
Even if the country benefits from the most dynamic ICT market, with a growth rate of 20% since
2001, the penetration rate of internet is lower than in developed countries (29% for Turkey, 59%
for France) but it still represents 19 millions (25% of the households) of internet users (this means
6th at the European level). And, with the improvements of the purchasing power, the amount of
users is growing up. In this sector, TTnet is dominant with a market share of 95%. There are 81
Internet providers available offering up to 1000 mbit/s speeds. This can be considered as a
reasonable speed of connection.
However, Internet censorship is also a problem in Turkey, with courts issuing site‐blocking orders
under laws like Law Nr. 5651 on the "Regulation of Publications on the Internet and Suppression of
Crimes Committed by means of Such Publications".24
19 WIPO, Unesco, ONU
20 United Nations statistics 2008
21 UIT 2008
22 World Information Technology and science alliance 2009, UIT
23 UIT
24 http://en.wikipedia.org/wiki/Internet_in_Turkey
10

11.
In the phone sector, we can observe a conversion of the users from fixed phones to mobile phones.
Mobile penetration rate was 92% in 2008, that means 65,3 millions of users.
Since the negotiation process between Turkey and European Union for membership has been
started in 2005. The regulatory framework that is emerging in Turkey in the last few years is
largely inspired by that in European Union such as the regulations at interconnection costs lately
that plays a critical role to set up a competitive environment. Technologies Authority is persevering
to develop the mobile communications industry and to stimulate competition. The main actors in
the mobile phone sector, by order of importance, are TÜRKCELL, VODAFONE, AVEA25. In December
2010, there are a total of 61.8 million mobile subscribers with a penetration ratio of 85.1%.
Although 3G services are available only since 2009 in Turkey, it is not a new technology.
Licensing mobile operators to deliver 3G services is delayed compared to western countries due to
the Turkey’s market dynamics. On the other hand, since both the infrastructure costs and 3G
enabled mobile phone costs are decreased since the introduction of the technology many years ago,
mobile operators have been able to offer 3G services to relatively affordable prices26.
According to Information and Communications Technologies Authority (ICTA), currently (April
2010), the interconnection rates in Turkey are the lowest rates in Europe after Cyprus
(0.0313TL/min or 0.0124€/min)27
However the Turkish ICT market is still lying below most developed countries, it knows real
improvement, and dynamic growth.
The State policy is well planned to attract the technological knowledge of foreign investors. And the
size of the population is making of Turkey a really big potential market.
3. Raw materials28
Turkey possesses the biggest mine resources for most of minerals in the world. Excluding
petroleum and coal there are 53 exploitable minerals and metals and 4,500 mineral deposits in
Turkey.
Turkey’s major minerals produced are boron minerals, marble, basalt, feldspar, perlite, pumice
and barite. A wide variety of primary metallic minerals are produced as well.
Turkey contains 40% of the world’s marble reserves. The total reserves including proven,
probable and possible reserves are about 5 billion m3.
The natural stone sector in Turkey has developed significantly in last ten years. Total nature
stone exports were US$1.39 billion in 2008. Processed marble ranks first with a US $887 million
exports earning. Black marble takes second place with US $438 million.
Chrome and copper ore are the most significant minerals in the metals sector. Turkey is a major
world producer of processed mineral commodities, including refined borates and related
chemicals, cement, ceramics and glass.
In addition to metallic ore operations, boron production has started in 2009. Turkey possesses
approximately 72 % of boron reserves and is the leader exporter of the mineral and boron
chemicals in the world.
Oil began flow through the Baku‐Tblisi‐Ceyhan pipeline in May 2006, marking a major milestone
that will bring up to 1 million barrels per day from the Caspian to market. Several gas pipelines
also are being planned to help move central Asian gas to Europe via Turkey.
25 Atiyas & Doğan, 2007, pp: 501‐ 507
26 http://www.totaltele.com/view.aspx?ID=335766
27 http://www.deloitte.com/assets/Dcom‐Turkey/Local%20Assets/Documents/turkey‐
tr_tmt_ElektronikHaberlesmePazari_2010_170111.pdf.pdf, 2011, p.6
28 Source: CIA World Factbook ‐ Unless otherwise noted, information in this page is accurate as of July 12, 2011
11

12.
4. Energy and technology
Indigenous energy production meets nearly 48% of the total primary energy demand. It was
planned to double Domestic production by 2011 mainly in coal (lignite), which at present,
accounts for almost half of the total energy production. The hydropower should also be
increased two‐fold at the same time. Primary energy resources, which are produced in Turkey,
are hard coal, lignite, asphalted, petroleum, natural gas, hydroelectric energy and geothermal
energy.
Turkey’s established energy supply capacity is 40.000 MW and is dominated by hydro, natural
gas and coal resources. The gross electricity production in Turkey reached 198.567 GWh in 2008.
Thermal energy is the source of 82.8% of production; hydroelectric energy makes 16.75 % of it.
Coal, lignite and imported coal accounted for 28.98%, hydropower 16.77%, fuel oil 6% and
natural gas 48.17% of thermal electricity production. The installed electricity capacity of Turkey
increased by 3% and reached about 41.987 Mwah in 2008. Electricity consumption of Turkey
increased to 198.4 billion KWH in 2008.
With the current energy production of Turkey, we should not have to face power cuts problems
when we implement our shop in Istanbul.
III. Political environment
The Turkish State is a republic and Turkish Republic is based on a democratic, secular, pluralist
and parliamentary system where human rights are protected by law and social justice. The
national assembly is elected by popular vote and the nation is governed by the Council of
Ministers directed by the Prime Minister. The power to legislate is vested in the Turkish Grand
National Assembly (TGNA), which performs this function on behalf of the Turkish Nation. The
TGNA comprises 550 members elected by universal suffrage.
The exercise of executive power is vested in and is used by the President and the Council of
Ministers. The President, who is Head of State, represents the Republic of Turkey and the unity
of the Turkish Nation. Judicial power is exercised by the independent courts on behalf of the
Turkish Nation.
1. Internal policy
a. Political and administrative framework
Turkey has 81 provinces; themselves divided into districts (957 districts). The provinces and the
districts are managed respectively by prefects and sub‐prefects named by the State. The
president of the republic is elected by democratic vote. Then, he names the Prime Minister. The
mayors of communes, districts and villages are also elected by the vote for all. In some big cities,
there is an administrative level above communes, the “metropolis”. They are elected for 5 years.
b. Internal stability
The Turkish army integrated in the device of North Atlantic Treaty Organization (NATO) in 1952,
but The Turkish State has known three military coups: From 1960 to 1961, 1971 to 1973 and
1980 to 1983. The armed forces gathered under the National council of safety (MGK) continued
to play a strong social role in the population and exert a significant political influence29. It is only
in 2002 that their power started to decrease.
The defense policy of Turkey is designed to preserve and to protect national independence,
sovereignty, territorial integrity and vital interests of the country. The armies are located in the
Centre of the Caucasus, Middle East and the Balkans, which are the unstable areas in the world.
29 http://www.bibliomonde.com/donnee/turquie‐armee‐129.html
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Advice: As Turkey has already known a military coup in its history, it is important to take this in
account because if the army does not agree with the State it can create big tension in the country
and affect the business during long time.
c. Turkish government
Article five of the Constitution defines a specific role of the Turkish State: “to provide to the
individual the material and spiritual needs necessary to its blooming” 30.
The party in power is the AKP (Party of Justice and Development). Although it preaches a
democratic, liberal and pragmatic sight and a modernistic and pro‐European evolution, it is
often shown by the principal opposition CHP (Republican People’ s Party) as hiding an Islamic
ideology coming from some of its founders (ex‐members of the Party of the Virtue) endangering
the laic and democratic character of the Turkish State.
The Constitution goes back to 1982. It has been recently revised (September 2010) in order to
be more contemporary and to approach with the European requirements. The proposal of the
referendum caused a great political instability.
According to the opposition, the AKP wants to develop an authoritative style, which would
compromise the independence and the impartiality of the legal system. As a result, the CHP
appealed the constitutional court for the rejection of the proposals of the reforms of the AK.
Unfortunately it has been rejected and it only led to minor changes. Finally, the Justice and
Development Party AKP gained the referendum concerning the changes in the Constitution. AKP
won a record 49.9 percent of the parliamentary elections in June 2011.
It’s good to know that the opposition criticized AKP, but the results of the elections show that Turks
trust the Prime Minister Tayyip Erdogan (AK Party), who has transformed Turkey into one of the
world's fastest‐growing economies.
Now, pointed assertive foreign policy will be facing several foreign policy and domestic challenges
(example: refugees in Turkey because Arab Spring, EU membership, Kurds’ problem, new
constitution. Those topics will be analyzed further in next chapters)
d. Local administration
The Prime Minister failed to win enough seats to call a referendum on a planned new
constitution, but this is unlikely to deter him, given his AK Party polled nearly 50 percent of the
vote ‐ its highest mark since it first came to power in 2002. He said he will seek consensus but it
remains to be seen how he will approach reform. He may still seek to win defectors from other
parties to bring his 32631 majority above the 330 seats required. If he tries to push his way
through, as he has done in the past, political tensions will rise.
e. Socio‐economic tension
The Cypriot issue
In 1974, when Turkey invaded the island of Cyprus after a government takeover carried out by
partisans for a union with Greece, it was decided to divide into two parts. The problem began
since the establishment in 1963 of the Turkish Republic of North Cyprus because Turkey didn’t
recognize it even if it is today member of the EU. Turkey blocks the access of the Turkish ports
and airports to the Greek ships and the Cypriot planes.
The Kurdish issue
The Kurds are about 25 to 30 millions people quartered between Turkey, Iran, Iraq, Syria,
Armenia and Georgia even if the majority lives in Turkey. Since the collapse of the Ottoman
30 http://www.tbmm.gov.tr/
31 http://www.todayszaman.com/news‐247229‐inside‐erdogans‐office‐the‐day‐after‐big‐victory.html
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Empire in 1913, many confrontations happened between the Turkish soldiers and the area of
Kurdistan, due to the fact that Turkey refuses the recognition of the Kurds. It increased in 1984
with the rising of the PKK (Party of Kurdistan’s workers), considered as a terrorist organization
by the United States and the European Union. 32Although the party is dissolved since 2006, the
PKK is always in activity. Recently (31th October 2010), it has been suspected for the attack
against the police on the Taksim place in Istanbul.
2. External policy
a. Relationship between Turkish and European Union
The negotiations of adhesion have been officially opened since October 200533.
Nevertheless, some obstacles remain on the way to the accession of Turkey at the EU which are;
commercial relations with Cyprus, freedom of thought or the rights of the Kurdish minority.
Analysts say the government needs to focus on reviving Turkey's EU bid, which remains stalled.
The Prime Minister announced that he planned to set up a new ministry for relations with the
EU as part of a ministerial shake‐up.
But support for EU membership among Turks is declining and many question why dynamic
Turkey would want to enter a union plagued by debt and slow growth. Turkey could break a
deadlock in negotiations by opening its ports and airports to traffic from EU member Cyprus.
With the election out of the way, a move that dices with nationalist sentiments would be less
risky and could be worth taking. It would force the EU to unfreeze several remaining chapters, or
subject areas, for negotiation.
b. The Iraqi and Syrian issues
Turkey estimates that 3500‐armed men of the PKK are based in the North of Iraq where they are
amassing weapons in order to conduct attacks on the Turkish territory. Indeed, it is in Iraq that
Kurdistan is the most politically structured. This conflict could cause a destabilization of the
North of the country. Turkey threatens to take economic sanctions against Iraq. Despite the
declarations of the Iraqi government prohibiting operating on his ground, Turkey carried out an
invasion in this area, which generated consequences on oil’s exportations and then, increases of
costs.
Next to that, Turkey, Iraq and Syria also struggle for the distribution of common water of the
Tiger and Euphrates. Indeed, Turkey carries out a gigantic building project of dams and
hydroelectric stations intending to develop water use and to modernize, profiting from its
natural resources. The instigated area (South‐East Anatolia) is mainly populated of Kurds,
ravaged by the conflicts. There are almost no protecting laws on this subject and no
international institution to arbitrate such problems. We have to be careful about this because
this situation could lead to future wars.
c. The “Arab Spring” issues
Under its “zero problems with neighbors” policy, Turkey has made a huge effort to improve
political and economic ties with Middle Eastern neighbors. But, having cultivated good relations
with autocratic leaders, Turkey's diplomatic skills are being put to the test by the “Arab Spring”
uprisings, as it supports people's demands for greater democracy in the region.
The most pressing crisis is in neighboring Syria. Thousands of refugees have fled to Turkey to
escape a bloody crackdown by President Bashar al‐Assad.
32 http://www.lepoint.fr/monde/istanbul‐le‐pkk‐premier‐suspect‐dans‐l‐attentat‐de‐la‐place‐taksim‐01‐
11‐2010‐1256868_24.php
33 http://www.euractiv.com/fr/relations‐entre‐l‐ue‐et‐la‐turquie‐fr‐linksdossier‐188670
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3. Local government
a. Environmental polity
Turkey has been actively involved in international cooperation efforts to address environmental
problems that are complex and mostly related to socio‐economic issues. Turkey, taking into
account its national interests and socio‐economic conditions, have become party to a number of
conventions34 both at the global and regional level (such as UN, the OECD, OSCE), with a view to
contributing to address environmental problems.
b. Social and health development
Fin details in appendix 16
c. Stability policy
The Turkish government set up a system of liberal regulation of the importations to support the
foreign investors. The law n° 4875 envisages equality between the foreign and the Turkish
investors and the freedom of investment for the foreigners. The investors could also benefit
from exemption of taxes in free areas inside Turkey35.
Turkey introduced a new commercial law aiming the improvement of transparency, of minority
rights and reinforcing the principles of governorship of the companies.
Trade policies decisions are made at the governmental level.
Advice: Turkish government works really hard to modernize his economy and to attract the
investments. Turkey represents a real opportunity in terms of regulation even if the investors
should seriously take into account the ethnical and cross‐boarders conflicts of the country.
IV. Economic environment
Interest Growth Inflation Current
Country Jobless Rate Exchange Rate
Rate Rate Rate Account
Turkey 6.25% 3.70% 6.31% 10.50% ‐3438 1.7786
1. State finance
a. Turkey GDP Growth Rate
In 2009, Turkey was the 17th world economic power, just after South Korea and Netherland.
The GDP (Gross Domestic Product) was $617.1 US billion or 1.00% of the world economy,
according to the World Bank. This represents a decrease of 4.74% since 2008. In 2008, the real
growth rate of GDP was 0.9% since 2007 and 4.7% from 2006 to 2007.
In 2009, Turkey’s GDP was decomposed by sectors like following:
⇒ Primary (agriculture): 9.3%;
⇒ Secondary (industry): 25.6%;
⇒ Tertiary (services): 65.1%36
Its economy is currently in transition from a high degree of reliance on agriculture and heavy
industrial economy to a more diversified economy with an increasing and globalizing services
sector.
34 http://www.mfa.gov.tr/international‐environmental‐issues.en.mfa
35 http://www.turkiyemiz.gen.tr/france/266‐267.htm
36 http://www.cia.gov/library/publications/the‐world‐factbook/geos/tu.html
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Nowadays, the GPD per capita stands at US $8,730 dollars37 in 2009, according to the World
Bank. In 2002, the GDP per capita was US $3,310 and it doesn’t stop growing until now.
At the end of 2009, the GDP, in terms of Purchasing power parity (PPP), was US $13,90538. We
observe a huge increase at this level, because the PPP in 2007 was US $12,300 and $13,417 in
2008. The purchasing power of the population has continued to increase despite the global
economic conditions.
However, it is important to point out the informal economy, which represents nearly half of GDP
and 40% of the workforce. The informal sector consists of several tens of thousands of businesses
that are often subcontractors companies.39
Distribution of family income ‐ Gini index40
Year Distribution of family income ‐ Gini Rank Per cent Change Date of Information
index
2009 43.6 49 ‐ 2003
2010 41 57 ‐5.96 % 2007
This index measures the degree of inequality in the family income distribution in Turkey. The
GINI index shows clearly that there is an unequal distribution of Turkish incomes.
It is really important to take GINI coefficient in account, because it is one of the keys, which help
us to describe the potential of the market.
The population below poverty threshold in Turkey decreased from 20%41 to 17.11% in six years.
We can observe a fall of almost 3% of the number of people living below poverty threshold. In
comparison with a developed country like Germany, which has only 11% of poor people, Turkey
is an emerging country that already has high purchasing power prospects that could afford
luxury products but much more poor people. But in the future, the poor part will decrease
slowly, offering a good consuming market for any goods.
b. Middle class in Turkey:
The graph in appendix 7 shows clearly that Turkish average annual household’s income grows
constantly from 2003 to 2009.
We observe two types of middle classes in Turkey: the lower middle class and the upper middle
class.
During the last five years, the annual household’s income growth was mush more important in
upper middle class than in lower middle class. This is due to the opening of the market to F.D.I.
Because, generally, when F.D.I comes on an emerging market, it often leads to best wages. The
local companies are also obliged to increase their wages. Then, wages tends to increase in all the
sectors of the country. This is exactly what is happening in Turkey right now.
c. Production capacities and overcapacities:
The Turkish clothing industry, with a share of 4.1%, is the 5th largest supplier in the world and
the 2nd largest supplier of the European Union. Turkey also ranked 7th in the world production
of cotton with about 675 thousand tons of textile during the 2007‐2008 season.
With this information, we believe that the Turkish market is saturated. But the Turkish
production is mainly middle‐range “ready‐to‐wear” clothes. The luxury brands have good
demand, particularly in local urban areas.
Considering the fact that Turkey is the second supplier of clothing in Europe, it should have good
production equipment and a skilled labor force in this sector. That’s why local production will be
37 http://www.worldbank.org/ (2009)
38 http://www.worldbank.org/
39 http://www.ladocumentationfrancaise.fr/dossiers/europe‐turquie/economie‐turque.shtml
40 http://www.indexmundi.com/turkey/distribution_of_family_income_gini_index.html
41 http://www.nationmaster.com/country/tu‐turkey/eco‐economy
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the most adapted solution to our project.
d. Labor force in Turkey:
The total of labor force in Turkey was reported at 25.8 millions of people in 200842. Thus, the
employment structure for the period of June 201043 is the following:
• 70.7 % were males. (Inequality between men and women due to the culture)
• 60.3 % had education below high school.
• 60.1 % were regular and casual employees, 25 % were self‐employed or employers,
14.9 % were unpaid workers (family workers without a really declared incomes).
• 60 % worked in establishments consisting of “1‐9 employees”.
• 3 % had an additional job.
• 3.1 % were seeking jobs either to replace the current job or in addition to an existing job.
• 86.8 % of regular employees worked in permanent jobs.
Actual weekly working hours and monthly average labour cost by economic activity of establishment
The Actual weekly Monthly
distribution working average gross Monthly average
of employees hours wage labour cost
2004 2008 2004 2008 2004 2008 2004 2008
Economic activity (NACE Rev.1.1) (%) (hour) (TRY)
Total 100,0 100,0 42,1 42,3 964 1 383 1 388 1 833
(C) Mining and quarrying 2,4 1,6 42,0 41,4 984 1 466 1 585 2 222
(D) Manufacturing 47,2 40,9 42,9 42,7 782 1 154 1 129 1 576
(E) Electricity, gas and water supply 3,7 1,1 42,2 40,0 1 514 2 506 2 116 3 593
(F) Construction 5,9 6,4 43,0 43,9 686 844 920 1 055
(G) Wholesale and retail trade; repair of
motor vehicles, motorcycles and
personal and household goods 15,0 13,0 43,2 43,0 826 1 316 1 146 1 725
(H) Hotels and restaurants 3,6 4,6 43,7 44,6 630 981 849 1 254
(I) Transport, storage and 9,3 7,0 41,3 41,4 1 278 1 857 1 762 2 558
(J) Financial intermediation 8,7 4,2 36,0 38,0 1 949 3 156 3 031 4 264
(K) Real estate, renting and business
activities 4,2 9,5 40,9 42,6 936 1 264 1 277 1 597
(M) Education - 4,0 - 39,0 - 1 630 - 1 993
(N) Health and social work - 5,5 - 41,2 - 1 919 - 2 288
(O) Other community, social and
personal service activities - 2,2 - 41,3 - 1 669 - 2 214
Not: Total figures are not comparable since M, N and O activities are not covered in 2004 application.
Analyze: The labor force is defined as the number of people employed plus the number of
unemployed but seeking work. The non‐labor force includes those who are not looking for work,
who are institutionalized, who are serving in the military but excludes homemakers and other
unpaid caregivers and workers in the informal sectors.44
The figures point out the main sectors where the employment rates are the highest. In 2008, it
reached 40.2% for the manufacturing sector and 13% for the wholesale, retailing and household
goods sector. The decreasing of the percentage of people in the two main sectors could be explained
by new jobs created in social and personal services sectors.
Nevertheless, there is a disparity between posts in the employment, because only 29.3% of
employees in June 2010 are women.
In the retailing and household goods sector, the average labor cost per employee was TRY 2,077
in 2010, representing US $1,168 or € 820.
42 http://www.worldbank.org/
43 www.turkstat.gov.tr
44 http://www.tradingeconomics.com/Economics/Unemployment‐rate.aspx?Symbol=TRY
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As information, the average labor cost for the employer in Belgium for the retailing and
household goods sector were US $3058 or €2146 in 200845. So, from the investor’s point of view,
it will be mush more interesting to get local labor force than repatriating employees or workers
from Belgium.
e. Trade balance:
The Turkish current account deficit amounted to $15.300 billions in 2005. It represented an
increase of 124.80% compared to 2004. In 2006, the deficit reached $23.080 US billion
representing a rise of 50.85%. It increases by 12.61% in 2007 and 44.49% in 2008 compared to
the results of 2007. 46
According to the World Bank, Turkey reported a current account deficit equivalent US $11
billions 2009 and US $41.4 billion in 2010. We observe that the deficit did not stop to increase
until 2009. Currently, Turkey records for a fall of ‐73.56% on its current account deficit. At this
level the current account deficit represents 1.78% of the GDP.
Turkey’s main exports are: textiles and clothing, automotive, iron and steel, white goods,
chemicals, pharmaceuticals and ships. Turkey imports mainly machinery, chemicals, semi‐
finished goods, fuels and transport equipment.
Its main trading partners are: European Union (57% exports, 40% imports), mainly Germany,
Russia and The United States.47
⇒ Exports: US $117.4 billions in 2009 and $140.8 billions in 2008
⇒ Imports: US $166.3 billions in 2009 and $193.9 billions in 2008
We can see that Turkish importations are bigger than exportations, because it is the common
policy of most of the emerging countries. Importations are mainly commodities like machinery,
raw materials, chemicals, semi‐finished goods, equipment and fuel.
f. Public debts:
The public debts of Turkey reached 48.1% of GDP in 2010 against 46.30% of the GDP in 2009. It
is below the threshold of 60% fixed by the
EU for EU‐members. In comparison with
the year 2008, public debts grow of 6.30%.
Turkey's external debt stock dropped to
$ 268.3 billions in December 2010 (US
$278.14 billions in 2008).
We can see that Turkish government repaid
US $9.84 billions48 (3.67%) of its external
debts during the 2009 year.
However, government aims to limit the
excess of the threshold of 3% of the GDP
budget deficit following the Maastricht
criteria. According to the IMF, the Turkish
government expects a deficit of 4.9% of
GDP in 2010 against 5.5% of GDP in 2009,
then 4% in 2011 and 3.2% in 2012.49
45 http://statbel.fgov.be/fr/statistiques/chiffres/travailvie/salaires/mensuels/index.jsp
46 http://www.indexmundi.com/turkey/current_account_balance.html
47 http://www.tradingeconomics.com/Economics/Current‐Account.aspx?Symbol=TRY
48 http://www.worldbulletin.net/news_detail.php?id=52055
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After the global financial crisis came round in 2008 Turkey was in a better position to weather the
storm than many other countries. The level of public debt was already relatively low, and although
the effects of the recession were still felt, by 2010 the Turkish economy had started to bounce back50
‐ to the extent that by the beginning of 2011, concerns were being raised over whether the boom
was sustainable.
Nevertheless, Investors are uncertain about the use of reserve requirements as a tool to control
credit growth, saying banks may simply sell bond holdings to raise funds for lending, given the
fierce competition between Turkish lenders for market share.51
g. Inflation rate:
Source: CIA World Factbook ‐ Unless otherwise noted, information in this page is accurate as of January 1, 2011
The average inflation in Turkey was reported at 8,7% in 2010. According IMF, in 2015, Turkey's
average inflation is expected to be 4% change.
Nevertheless, it states at 6,31% in August of 2011. Inflation rate refers to a general rise in prices
measured against a standard level of purchasing power.
So, even if the inflation rate is currently growing the IMF forecasts are pretty good. When we
observe where Turkey is coming from (inflation rate speaking), we can be optimistic about the
situation because Turkey had 65% inflation rate in 1999. Thank to its economic policy after the
internal economic disasters, Turkey curbs its inflation rate by 13.4% in ten years times.
2. Monetary policy
In 2001, a real economic recession and a very high public debt had led to the collapse of the
Turkish banking system. The Turkish lira (TRY) was devalued by 50%.
The securing of the FOREX system52 led from 2005 to a convertibility of the new Turkish lira.
Reserves of foreign exchange and gold (US$)53
49 http://www.econostrum.info/Le‐FMI‐tance‐la‐Turquie‐sur‐son‐budget_a3314.html
50 http://news.bbc.co.uk/2/hi/europe/country_profiles/1022222.stm
51 http://blogs.ft.com/beyond‐brics/2011/03/04/turkeys‐monetary‐policy‐experiment‐under‐
investigation/#ixzz1V0g24FDq
52 Forex system = (the creation of a currency board of backed guarantee funds in foreign currencies)
53 http://www.indexmundi.com/g/g.aspx?v=144&c=tu&l=en
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This category includes not only foreign currency and gold, but also a country's holdings of
Special Drawing Rights in the International Monetary Fund, and its reserve position in the Fund.
a. Interest rate:
The Central Bank of Turkey left its policy rate at 6.25% at its June 2011 meeting54. The monetary
authority didn’t touch reserve requirements either, as it preferred to stay on the shelves and see
the impact of previous policy changes before making another change.
Fiscal spending is under control and inflation is well mannered, which creates a moderate
environment for monetary policy.
b. Exchange rate:
Like most other currencies, the Turkish lira lost 10 per cent of its value against a dollar and euro
basket during stock market and financial crisis in 2011.
US$ 1 = TRY 1.7786 and € 1 = TRY 2.5342
One of the risks is that Turkish economy is very fragile even if it has not suffered too much from the
recent economic crisis.
European Union and the U.S. are the main trading partners of Turkey. If the economic situation of
those countries does not improve in the coming years, we could observe Turkish exportations
decreasing sharply. This will cause a depreciation of the Turkish lira
Moreover, the Turkish government is facing debts wish must be paid. The government has to find a
way to pay debts.
The risk could be, either an increased of corporate taxation rate, which is currently 20% (very good
taxation rate), either decreasing State expenses, or increasing of citizens taxation rate which will
cause a decrease in real purchasing power of the population.
3. Fiscal policy
a. Corporate tax
The standard corporate income tax rate on business profits is 20%.55
Taxes on dividends are 15%.
Turkish and resident companies are taxed on their global income. However, non‐resident
companies are only taxed on their income.
b. Consumption tax:
V.A.T: The standard rate of value added tax is 18%.
Communication Tax
All types of installations, transfers and telecommunication services given by mobile phone
operators are subject to a special 25% communication tax.
54https://www.economy.com/home/login/ds_proLogin_5.asp?script_name=/dismal/pro/release.asp&r=t
ur_mpolicy&tkr=1108140918
55 http://www.invest.gov.tr/fr‐FR/investmentguide/investorsguide/Pages/Taxes.aspx
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c. Special Consumption Tax
Regarding to the category of goods, luxury goods imported are subject to special consumption
tax at different rates. Special Consumption Tax is charged only once. Taxpayers are
manufacturers, exporters or sellers. The tax rate varies between 6.7% and 20%56.
Banking and Insurance Transaction Tax
The general rate is 5%. Interest on deposits transactions between banks is taxed at 1% and sales
from foreign exchange transactions at 0.1%.
Stamp Duty
Stamp duty depends on the value of the document. The general rates vary from 0.165% to
0.825%.
d. Individual tax
Income taxation rates for yearly gross earnings from 2010 are as follows:
Income tax rate Progressive, from 15% to 35%
From TRY 0 to 8.70057 15%
From TRY 8.701 to 22.000 58 20%
From TRY 22.001 to 50.00059 27%
Over TRY 50.000 35%
Taxation comparison Belgium – Turkey
Belgium Turkey
VAT 21% 18%
Corporate Tax 33.99% including 3% extra 20%
Dividend Tax 25% 15%
Individual Tax 25 – 50 % 15 – 35 %
It is clearly attractive to set up a company in Turkey, because completely independent from the
Belgian fiscal administration. In order to keep on exporting our luxury goods to Turkey, we should
only be present in Turkey as a non‐resident company.
Thanks to competitive Turkish corporate tax rate, corporate income will rise and the return on
investment will be more efficient.
4. Legislative context and transaction cost
a. Market access and world trade organization
Turkey has particularly ratified the following international conventions:
World Trade Organization60.
Essentially, they are contracts guaranteeing member countries important trade rights61.
Concerning the main international economic cooperation, Turkey is member of:
56 kpmg
57 US $4.892
58 US $12.370
59 US $28.113
60 http://www.wto.org/french/thewto_f/whatis_f/tif_f/org6_f.htm
61 http://www.wto.org/french/res_f/doload_f/inbr_f.pdf
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1) BSEC62, Organization of the Black Sea Economic Cooperation – 1992.
The main members are notably Turkey, Russia, Greece, Ukraine, Romania, Albania, Armenia,
Azerbaijan, Bulgaria, Georgia, and Moldova.
The organization’s pillar is The Black Sea Trade and Development Bank that notably support
projects in sectors such as telecommunications, manufacturing, financial services, transportation
and energy.
2) The Euromed63 (Barcelona Process)
The Partnership includes all 27‐member states of the European Union, along with 16 partners
across the Southern Mediterranean and the Middle East, including Turkey, Israel, Algeria, Egypt,
Croatia, Lebanon, Libya, Morocco and Syria.
3) European Customs Union (1996)
It regulates the Customs Union rules between Turkey and the EU, notably on free movement of
goods (no customs duties, quotas or measures having equivalent effect and a compliance to the
Common Customs Tariff).
Turkey has also ratified several multilateral and bilateral agreements with many countries.
Agreements between Turkey and Belgium are concerning investments environment. They aim to
increase capital exchanges while insuring the stability of investments. It means that it prevents
foreign investors from confiscations or expropriations.
All those agreements got a direct impact on business. Indeed, on one hand, they enable trade’s
conditions for exportation goods to Turkey and on the other hand, they reduce dramatically
risks concerning foreign investments with liberal incentives and reforms on market protecting
for investors.
Moreover, it’s obvious that Turkey is an export platform towards other markets. Thanks to
localization, to international and to regional trading alliances, Turkey has real potential accesses
to economically important countries such as Greece, Romania, and Bulgaria.
b. Custom duties
Since Turkey joined the Customs Union of the EU, products coming from the EU move freely
without any quantitative restrictions. A big part of Customs duties on industrial products
including textile coming from the EU have dropped from 10% to 0%.
c. Tax exemptions
Tax exemptions are concerning:
• Benefits for corporations from overseas branches and both domestic and overseas ventures
if they meet certain conditions.
• Export of goods and services.
• Deliveries made to diplomatic representatives, consulates and international organizations
with tax exemption status for their employees.
• International transportation
• National purchased or imported machinery and equipment for project meeting the incentive
certificate.
However, Textile can only be exempted from VAT only with an exemption certificate.
62 http://www.bsec‐organization.org/member/Pages/member.aspx
63 http://eeas.europa.eu/euromed/index_fr.htm
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Indeed, our products are not exposed to customs duties, so they are able to be competitive on
Turkish market as opposed to product coming from other countries. We can expect to have
larger prospects and several partners or distributors.
Moreover, our luxury product will not be exposed to VAT if they are sold to diplomatic
representatives, consulates and international organizations. This is exactly a part of the
customers we want to target.
d. Foreign Direct Investment in Turkey
Pro‐business foreign investment policies have been introduced as a part of the liberalization of
the Turkish economy. The foreign investment legislation provides a more secure environment
for foreign capital by providing support from several bilateral and multilateral agreements and
organizations, guaranteeing foreign capital the same rights and obligations as local capital, and
guaranteeing the transfer of profits, fees and royalties and the repatriation of capital.
 Find foreign investment Low in appendix 15
e. Intellectual property right
Turkey is currently adapting the legal framework for industrial property to the directives of the
EU. The main progress in this area are the creation of the Turkish Patent Institute (TPI), the
introduction of a regime of penal sanctions and updating of the Trademarks Act through a series
of decrees. Moreover, Turkey is a partner of the World Intellectual Property Organization
(WIPO)64. Find in appendix 12, table on Intellectual Property.
Due to the well‐known infringement of luxury fashion in Turkey, we have to check if all of our
products are well registered in Belgium. Indeed, thanks to the fact that Turkey got a partnership
with the WIPO, registered goods are protected. Trademark registration is a key issue for our
business because infringement can involve important cost and sales decrease. It is a risk to take
into account.
f. Corruption
Turkey is ranked ta the 56th position in the transparency index65. Corruption is still something
usual in this country and you can’t do business without being confronted to it.
In general, bribery and corruption is the daily routine if you want to do business in Turkey.
Contacts with the Turkish authorities are governed by bribery, so you should keep that in mind
while estimating your costs. Once again, having a local partner remains very useful in terms of
knowing who to pay and how much.
g. Company establishment and needed certificates
It is now possible to establish a company just in one day66 when applied to the related Trade
Registry Office with the required documents. The company gets its “legal entity” upon
registration at the Trade Registry. You can find a detailed list of all the required documents for
the company establishment in appendix 13.
Appendix 14: The choice of the legal business entities is very important for investors as well as
partners. It depends on company’s development perspectives.
As a part of doing business in Turkey, the fittest legal business entity is a general partnership
SCS. Indeed, both investor and partner will decide freely the amount of capital. Moreover, that’s
the best solution for investor having capitals, wanting to limit their liability and having the right
64 www.wipo.int
65 Source: http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results
66 http‐//www.igeme.gov.tr/english/turkey/pdfView.cfm?subID=3
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to control company’s management. Also for us as, active partners, it enables to have a well‐
prepared project and to have freedom concerning businesses decisions.
V. Profile of the targeted market
1. Potential and size of the market
a. General
Nowadays, it is estimated that more than 15 million Turks (21% of the population) would
benefit from a purchasing power equivalent to the European average.
If we cross the PPP US $13,905 with the middle class (15 millions), we can estimate the Turkish
market to €208.6 billions per year. Obviously, it doesn’t mean that all of this value will be spent
for household’s commodities.
b. Consumer pattern
Istanbul’s population reaches 12.782 millions, there is 42% of upper and middle‐class mixed.
The addition of upper and middle‐class populations reaches more than 5.3 millions.
The purchasing power of the population in term of PPP was $13,90567 in the end 2009 despite
the global economic conditions.
This part of the urban population is an interesting consuming base making big cities good
market seeking for investors.
c. Istanbul
The population of Istanbul represents 5.3 millions of wealthy people. Thus, US $13.905*5.3
millions equals US $73.7 billions a year.
In 2006, 6% of PPP was related to clothing spend. So, the value of this potential market is US
$4.42 billions a year.
It is important to keep in mind that upper and middle class population could use more than 6%
of their purchasing power in luxury clothes. This means that we could even estimate these
market values more than US $4.42 billions a year.
d. Competition
There are two kinds of competitors:
The direct competitors, namely the brands that sale more or less the same products as
Belgian Fashion like Façonnable, Gant, Tommy Hilfiger, Calvin Klein, Guess, Hugo Boss…
The indirect competitors which are all the other clothing sellers as Tekbir (the H&M
made in Turkey), Massimo Dutti, Vanko, Ottoman Empire, Mango, G‐star, Levis, Adidas,
Diesel…
We also have to be aware that we are not the first company to establish in Turkey and that we
have a lot of competitors. However, the market size is big and it should increase, so, we can
easily catch some market shares if we practice a diligent commercial strategy.
67 http://www.worldbank.org/
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