According to the World Bank, Turkey ranks 33 on ‘Ease of doing business’ and 77 on ‘Ease of starting a business’ among 190 countries. This is generally due to inefficient business regulatory environment and the amount of time taking to start a business, to deal with construction permits, register property and file tax returns. For foreign investors, however, there could be additional challenges waiting for them to do business in Turkey. In this blog post, we will talk about the main challenges of doing business in Turkey and how international businesses can tackle these.
Different market with different consumer habits
Turkish consumers’ demographic characteristics are significantly different from those of European and Western consumers in terms of age and cultural aspects. As a population, Turks are young: Roughly 60 percent of citizens are under the age of 35, younger than anywhere else in Europe. By 2050, the population is expected to reach at 93 million, while much of the rest of Europe ages. Young Turkish consumers tend to select aspirational brands, adopt new products more eagerly than an average global consumer who research about the product and seek for deals, whereas in developed markets with older population, shoppers usually take a sceptical approach and prefer to make choices on their own.
Different consumer habits do not necessarily have to be a challenge; in fact it could easily be turned into an opportunity by conducting a thorough market analysis focused on understanding Turkish consumer habits and the latest trends in the market. Based on your extensive market analysis, you can set and refine market entry strategies increasing the chances of a successful product or service launch in the country. The tailored go- to-market strategy will provide you with a roadmap for fast revenue generation in the new marketplace.
Government cannot always keep up with the sheer development of the emerging industries in Turkey. Official rules and processes may delay results while some legislations may change overnight. Therefore, it is vital for foreign investors to employ a local partner with a good understanding of the Turkish legislation, who can facilitate the paperwork and provide regular updates regarding newly enacted legislation.
Unfamiliarity with the business culture
Turks value personal relationships with people they do business with. They are generally very friendly and hospitable and will often be happy to conduct business meetings over a meal or drinks. This may confuse Western businesspeople as they are used to more structured way of conducting business.
Building relationships and showing commitment to your potential Turkish partners can lead to long term profitable partnerships. This could be in form of regular visits, business lunch or dinners in a slightly more informal environment.
Although percentage of English speakers in Turkey’s biggest cities is immensely high, there are more subtle types of language barriers. For example, your industry or skill set may involve a lot of jargon or technical language. When you’re speaking to people outside your industry, or even outside your department, a lot can get lost in translation. Language barriers can interfere with communication, create misunderstandings and even irritations. More importantly, official documents signed without full understanding can lead to irreversible mistakes. Thus it is essential that these issues are addressed and overcome, especially during the early stages of business. All official documents should be translated by a qualified and licensed translator into the primary language. Hiring an interpreter to be present in your meetings can also facilitate communication.
Dealing with Construction Permits
Obtaining necessary licenses and permits, submitting all required notifications, requesting and receiving all necessary inspections and obtaining utility connections may take up to three months. Hiring a local partner with an experience and good understanding of the required procedures can immensely speed up the process and save you money as well as time.
Uneven rates of economic growth in different parts of the Turkey
There is wide variation between different regions of Turkey in terms of population levels, average income levels, consumer spending habits, education levels and lifestyles. Therefore, it is important to identify the characteristics of your target market in Turkey and determine your location accordingly prior to entering the market. Dividing your target market into segments and customising your vale proposition to each segment can allow market efforts to be more targeted and better tailored to those distinct groups.
Local competitors who are already operating in the market
Competitors already operating in Turkish market can be more experienced and knowledgeable about the market and therefore, they might be communicating more closely with your potential customers.
Conducting a thorough research by interviewing industry experts and decision makers will help learn about the competitive landscape of the market. The current competitive environment in the target industry will determine the level of differentiation and localisation of your products and services. Therefore, it is essential that you found out who your potential competitors are, what they are offering, and what their strengths and weaknesses are. Researching underperforming competitors can be as rewarding as researching strong market leaders to learn from their mistakes and develop your unique selling points accordingly before even entering the market.
Hiring right talent at a right cost
Although 21% of young adults hold a bachelor’s degree in Turkey, they are mainly concentrated in three biggest cities; Istanbul, Ankara and Izmir. The shortage of skilled workers in other regions could be a challenge. It is important to know whether your target regions are home to predominantly knowledge-intensive, capital intensive or labour-intensive industries. These will play an important role in access to right talent as well as in determining the total cost of labour.
Calculating regional hourly labour costs and the share of social contributions in total labour costs can also be a challenge for employers. Related labour costs can be analysed on Turkish Statistical Institute’s website that publishes average monthly and annual labour costs in each industry.
Working with a local recruitment consultant with market knowledge can also help you with salary benchmarking and speed up the recruitment process.
Access to Turkish suppliers and distribution channels
Each market has its own unique distribution channels, which can then vary by product, region, or industry. Depending on your business and your products, these can include wholesalers, retailers, online marketplaces, or shipping companies that take your products directly to consumers. However, finding right suppliers or distribution channel may take time and wrong choice of partner can come back as a waste of time and money.
To find the best possible match for your business, be specific and clear about your needs, expectations and budget. After a comprehensive market search, you can make initial contact via email, then follow up by phone if you need more information. Don’t rush to move forward immediately. Create a comprehensive agreement document in both home and local languages to ensure that the parties really agree upon the terms of deal.
Handling International Money
There are a number of finance issues when it comes to expanding internationally. While there are money issues to consider such as taxation and customs duties, also remember exchange rates when setting prices of products, and the costs of international money transfer.
If you already have an office in Turkey, opening a bank account in the country is the best option to avoid transaction fees, but trying to open an account overseas can be challenging if you don’t have a local residential address.
Another option for receiving Turkish lira would be to open a multicurrency account in home country. This is an account offered by a bank specifically designed for individuals who regularly transact in a foreign currency. The transaction fee for these accounts to receive foreign currency may be substantially reduced compared to a standard bank account.
Growing a business across borders is challenging. As such, it is unsurprising that many small businesses are focusing their efforts on their home country. Fortunately, there is a great deal of help we can offer to take your business to Turkey. Thanks to our established network in Turkey, we can introduce you to the right distributors, value added resellers, service providers and professional experts including bilingual accountants, lawyers and recruitment agencies that can look after you and your business in Turkey.