DEAKIN UNIVERSITY

FACULTY OF BUSINESS AND LAW

MPM735 INTERNATIONAL BUSINESS MANAGEMENT
UNIT CHAIR - DR. MURRAY FRAZER

ASSIGNMENT 2

TURKEY PROFILE: IEPFLFS SCENARIO

CONTRIBUTED BY

JINENDRA SAKHARE (212524361)

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 1. FOREIGN DIRECT INVESTMENT

Foreign Investment has been highly encouraged by the Turkish Government. After the
implementation of the Foreign Direct Investment Law, most of the restrictions on
foreign investors have been waived and under the commercial code and have been
granted the same status as Turkish companies.

Looking from Australias point of view, Australian FDI in Turkey (stock) was USD 197
million in 2012 and a cumulative value of FDI flows from Turkey to Australia amounts
to USD 38 million in 2012. The magnitude of FDI flows in 2012 in this direction was
USD 6 million.

Foreign investors have a great opportunity in Turkey due to factors such as good
infrastructure, beneficial geographic position, successful economic performance,
competitive, young and qualified labor force, big domestic market, incentives and
lower rates in taxation along with a tie up with customs union with the EU since 1996.
The number of active foreign firms in Turkey stood at 32,146. 881 and the cumulative
amount of foreign direct investments exceeded 130 billion USD towards the end of
2012. Figure 11 below shows the percentage of investments in Turkey by sector.

Figure11

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5.1 FDI Inflow to Turkey
Figure 11 shows the inflow of FDI in recent years. Countries from Gulf, the EU and
North America contribute greatly towards the inflow to Turkey.

Source: Central Bank of the Republic of Turkey

Figure 12 - FDI Inflow (USD -Billion).

5.2 Industry access for Windstream Manufacturing

Soytes Clean Energy and Electrotechnics Industry Co. Inc (Soyut Holding 2013)
has expressed interest to do business with wind turbine manufacturers all over the
world. The firm is interested in partnering with wind turbine and related equipment
manufacturers. The company is ready for collaboration for both directly marketing
their partner's products to end-users and also co-manufacturing and assembling
some parts in Turkey where many foreign companies enjoy lower labor costs and
inexpensive raw materials.
Windstream can capitalize on this opportunity and can gain access to the wind
energy manufacturing sector with ease.

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5.3 FDI Regulations
The regulations allow repatriation of capital as well as free profit, royalties and fees
transfer. Foreign investors have access to incentive schemes similar to what local
companies receive. Import controls have been liberalized to attract joint venture
initiatives. However, those investments that either create or are a part of monopoly,
are prohibited by the Foreign Investment Law and Competition law (Deloitte 2012).

The Foreign Direct Investment Law of 2003 emphasizes on:

Principal of equal treatment of domestic and foreign investors
Protection of Investors rights
Incentives for direct investments through customs and duties exemptions

The Renewable Energy Law aims to expand the use of renewable energy sources
for generating electrical energy, to reduce carbon emissions and to stimulate the
renewable technology industry (Sabathiel & Ergler)

5.4 Free Trade Zones

Free Zones are special locations within Turkey but are considered to be outside of
the customs region. Valid regulations related to foreign trade are inapplicable.
Convenient business atmosphere is provided to enhance trade volume and export.
Manufacturing is allowed in Turkish Free Zones.
These zones are free of tax and earnings and revenues can be moved to any
country. Foreign currencies accepted by the Central Bank of Turkey are
convertible.

5.5 Government Incentives

There are Investment incentives being offered such as reduction in corporate
income tax rate for earning from specific sectors, exemption of VAT, custom
duties, land allocation and loan support. In addition to this, regional investment
incentives are also given for areas that are a priority in terms of development.

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2. FINANCE

6.1 Banking System

Financial sector in Turkey has considered its banking system to be a major player
in its sector. Turkish banks have been categorized into two major groups:
commercial banks and investment and development banks. These groups can be
further sub-divided into three subcategories: private-owned, state-owned and
foreign banks.
Commercial banks operate as universal banks providing traditional depository
and lending services, financing foreign trade activities and sustaining capital
market services as well as investment banking activities.

A recent development is that Turkey's central bank has raised its key interest rate
by 0.75 percentage points in order to halt Turkish lira's fall against the dollar,
thereby increasing the lending rate from 6.5% to 7.25%.

6.2 Type of Exchange Rate System and Currency

The National or Regional Currency of Turkey is New Turkish Lira (TRY).
Turkeys foreign exchange system has been liberal. The Turkish Lira is fully
convertible. Firms are allowed to open foreign exchange accounts and enable
funds transfer abroad. However, for transactions exceeding 50000 US Dollars,
central bank needs to be intimated.
Figure 13 shows the trend in the Turkish Lira Australian Dollar exchange rate.
Currently, 1 AUD = 1.86 Turkish Lira

Figure 13

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6.3 Taxation
Foreign firms are subject to corporate income tax. Windstream Manufacturing
falls under the category of Limited Taxpayers since it is based in Melbourne.
The Corporate Income Tax rate is 20%. In addition to this Windstream will have
to pay 15% branch profit tax on after tax profits since it will be a foreign firms
branch. Tax loss may be carried forward for 5 years
Value added Tax is another aspect of the tax system.

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3. SOCIO-CULTURAL SCENARIO

7.1 Key Values and Traditions

Loyalty towards family is an important feature of Turkish society and has an impact
on business practice.
Turks involve in multiple conversations simultaneously. In a Turkish business
environment, calls may be received during scheduled meeting and without any
invitation, people may enter meeting rooms. Business meetings do not to have a
structured linear system.
Islamic philosophy and ideology is a prevalent feature of Turkish culture which
infiltrates business etiquette as well.

80% Turkish and 20% Kurdish 20% (estimated) constitute the ethnic make-up.
99.8% follow Muslim religion (mostly Sunni) and Jews/Christians constitute the
other 0.2%.

7.2 Business Etiquette and Communication Styles

Turkish is the widely spoken language and it is beneficial to know the language to
build a better rapport with the people.
A great deal of respect for education, authority and rank is exhibited by the
business environment in Turkey. Decisions making is in the hands of senior
business people. Sometimes the decision maker may consider the group involved
in it.
Age is a sign of wisdom and demands respect. It is a norm to address the most
senior person in the room first. In Turkish business culture, professional and
personal domains of life may overlap. Personal relationships play a significant role
at all levels hence a lot of time is spent in establishing a personal relationship.
Courtesy is crucial in all business dealings. Turks do not require as much personal
space as many other cultures and will stand close while conversing.
Maintaining eye contact while speaking is considered to be a sign of sincerity.
Pricing and finance are tackled slowly and never at the beginning of negotiations.
Bargaining will be conducted strenuously and often subtly. Turks are good
negotiators.

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7.3 Australia v/s Turkey - Hofstedes five dimensions
Figure 14 shows a comparison between Australia and Turkey on the basis of
Hofstedes five dimensions.

Figure 14

Power distance In Australian firms, superiors are always accessible and

managers rely on individual employees and teams for their expertise. Managers
and employees are consulted. Communication is informal as opposed to the
Turkish style where we see a structure that is dependent, hierarchical and the
superiors are often inaccessible and the ideal boss is a father figure. Managers
rely on their bosses and their rules.

Individualism - Australia is a highly individualistic culture where as Turkey is a

collectivistic society.

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 Masculinity / Femininity - Australia is considered a masculine society where
as Turkey is more on the feminine side. This means that the softer aspects of
culture are emphasized.

Uncertainty avoidance Australia as a fairly pragmatic culture in terms of

uncertainty avoidance. This means that both generalists and experts are
needed. In Turkey there is a vast need for laws and rules and people make use
a lot of rituals to minimize anxiety.

Long-term orientation Australia is a short-term oriented culture, focused

on traditions and fulfilling social obligations. Businesses measure their
performance on a short-term basis. Unfortunately, as of now no score
available for Turkey in this domain.

7.4 Holidays
Official public holidays in Turkey are regulated by Act 2429 (March 1981) and
include both national and Islamic religious holidays. The dates for Islamic
holidays change each year and are based on the phases of the moon.. The main
public holiday is Kurban Bayrami (Feast of the Sacrifice) which can last from
three to ten days.

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 4. RECOMMENDATIONS

Based on the research done on Turkeys country profile, we recommend the

following:

The current boom in Turkeys wind energy sector needs to be capitalized.

The available capital needs to be carefully invested in free trade zones so that
the firm can avail the benefits of the incentives provided for these zones.
Windstream Manufacturing will need to take a deeper insight into Turkeys
local cultural dynamics.
The firm needs to find local partners who can further assist in getting used to
the regulations and business relationships with greater accuracy.
The Government of Australias Austrade team in Istanbul can be approached
to find local partners.
Intensive training on Turkish business etiquettes to be provided to employees
being sent to Turkey.

Overall, the situation and timing seems favorable for Windstream to prepare for its
entry into the Turkish market with the Turkish government starting to focus more on
the on foreign direct investments and in revamping its tax structure to encourage
foreign companies to start projects in areas that need development.
Going forward, enhancements are expected to the countrys business environment.
Windstream Manufacturing can benefit from enhanced value gained from reduced
costs and can benefit from greater efficiency and competitiveness. Investors around
the globe have expressed confidence that Turkey is on a growth trajectory with its
tactical location, steady and concrete economic growth and its domestic market size
being the chief reasons for the rising interest by corporates in Turkey.

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