by Prema Nakra, Ph.D.

 

Strategically located at the crossroads of Southwestern Asia and Southeastern Europe and bordering the Black and Mediterranean seas, Turkey is well-positioned to offer and take advantage of global business opportunities. In part 3 of this series of articles, I outlined the key demographics and other factors that make Turkey a potentially lucrative market for international trade and investment. In this final article of the series, I discuss the challenges that international companies could face.

 

OPERATIONAL AND MARKETING CHALLENGES

 

Turkey has been categorized as an emerging market for more than two decades. While some other emerging markets such as the Czech Republic or Poland have already emerged and attained a reasonable level of development, the development in Turkey has been rather sporadic. Some of the reasons for that sporadic growth in foreign direct investment (FDI) are reflected in various factors illustrated below:

 

Instability

 

Turkey's external environment is highly unstable. Events in Europe, the Middle East, and North Africa can impact export demand negatively and dampen the growth outlook for coming years. Multinational corporations must be vigilant and carefully monitor the Eurozone crisis and continued unrest in the Middle East. Turkey's exports are threatened by the potential of a Eurozone recession. With more than 50% of Turkish exports going to the European Union (EU), Turkey is particularly vulnerable to a drop in demand from such key countries as Germany, Italy and Spain.

 

Regulatory Hurdles

 

Turkey's regulatory regime continues to be burdensome. The process for registering and setting up private enterprises has become less time consuming and complex but bureaucratic red tape, corruption and ineffective enforcement of regulations continues to be substantial. The government sets the prices for many agricultural products and pharmaceuticals and influences prices through regulations, subsidies and state-owned utilities and enterprises. The rigid labor market results in high unemployment and has contributed to the formation of a large informal sector. The intellectual property rights regulations have improved, but protection of confidential test data is insufficient, and the level of piracy and counterfeiting of copyrighted and trademarked materials remain high.

 

Cultural Dynamics

 

Anyone looking at the geographic size, strategic location, and the population of Turkey would assume that the country has a largely homogeneous economy and cultural. However that is not always the case. It is important to identify and develop specific market segments and target those that offer the best potential to achieve corporate goals with specific strategies for positioning and differentiation.

 

Case in point: Urban Turks are very progressive and sophisticated in their immediate families; both men and women attend universities, obtain degrees and hold high positions in organizations. This segment demonstrates the same lifestyles, fashion and shopping habits as those found in any modern cosmopolitan city in the world. Global positioning and differentiation strategies would be appropriate for this market segment. On the other hand, those living in rural areas, smaller cities and recent migrants to urban areas demonstrate the traditional Islamic social values.

 

Turkey's Islamic Heritage

 

The continuing modernization of the Turkish economy and Turkey's interest in the EU suggests the predominance of a utilitarian, capitalist mindset, but the country's Islamic heritage and patterns of political mobilization cannot be ignored. Approximately 95% of the Turkish population is Muslim. Since Turkey is a secular state, no one can be forced to participate in religious ceremonies. But religious needs of workers must be kept in mind while operating in Turkey.

 

Retailing Issues

 

The Turkish retail market is still in the hands of traditional retailers, despite the strong growth achieved by organized retailers over the past 10 years. But only a small segment of the population (five to seven million people) does the majority of their shopping in modern retail outlets. The average Turkish consumer usually shops in small, traditional, specialized neighborhood retail food outlets called "bakkals" that sell fresh and prepared foods and other products and bazaars where food prices are relatively low. When developing market demand projections and distribution strategies, international marketers must be aware of Turkish retailing structure and buyer decision processes.

 

Case in Point: Foreign confectionery producers have won significant share in much of the developing world but have a minor role in Turkey. Two of these producers account for only six percent share of the market. A major reason for this is the lack of access to the small groceries that control most of the retailing volume. Forced to use a number of third-party wholesalers that have limited penetration of the retail market, they are at a serious disadvantage.

 

Managing Anti-Competitive Practices

 

With increasing concentration in the retail sector, anti-competitive practices have emerged in the food supply chain in Turkey: listing fees, advertising and announcing fees, discount pressure, unconditional product restoration, and pressures for private label products have been commonly used as anti-competitive practices.

 

Embracing the Private Label Brands

 

Retailers, traditional and new age, have also been putting more emphasis on private label in order to provide cost efficiency. With economic downturn during past decade, consumers have been more inclined toward private label or non-label products as these have a price advantage. Marketers in this situation may have no choice but to embrace the prevalence of private label brands and cooperate with resellers in helping them develop these brands as they have done in other developed countries.

 

Protecting Intellectual Property

 

Counterfeit products are also an established phenomenon in Turkey. The coast region of Turkey with popular tourist destinations is very often the target for counterfeit sellers. It is ranked third after China and Morocco in terms of the number of counterfeit/pirated products brought into the EU by travelers. While Turkey must take steps to raise the level of protection it offers for intellectual property rights comparable to that in EU member states for it to become part of the EU, marketers must develop proactive strategies to deal with the issue of counterfeiting and piracy.

 

Final Words

 

As it sits at the crossroads between Europe, Asia, the Middle East and Africa, Turkey is perfectly situated to establish itself as one of the world's logistics hubs. The country has adopted a democratic political system and subsequently implemented free-market reforms that have created an open and free atmosphere where its citizens are able to appreciate their rich culture and heritage and practice Islam. This country's dynamic business environment, liberalized markets, young and productive populations, increasing urbanization, and unsaturated market structures all make the country attractive for international investors and marketers. Marketers must clearly understand the value proposition, state of support industries, and the cultural and retailing challenges addressed in this series of articles.