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Turkey - Country Guide

Turkey’s rapidly expanding economy, political and economic stability, and the possibility of EU membership has attracted the attention of a variety of international companies. Over 2,200 UK companies currently do business in Turkey. The UK is Turkey’s fifth largest source of imports from the EU, with a value of USD4.7 billion. Turkey’s financial sector is stronger than that of many other countries, in part due to a series of reforms in the wake of the 2001 financial crisis, which left Turkish banks better leveraged than many of their U.S. and European counterparts. However, banks here remain hesitant to extend trade and project credit.

Turkey is a long-term member of NATO with the second largest military – after that of the United States – in that organization. Turkey has a key role to play in most of the major regional issues.

Exporters have excellent medium-term prospects in this diverse market. Perhaps the most important sector for the next decade will be energy. Electricity demand had been growing at 8% a year, and will continue to grow, albeit at a slower rate. Turkey realizes it must prepare for continued economic recovery by adding now to its generating capacity to meet that demand. Suppliers and service companies should look into the sector as it relates to electricity and gas distribution, power generation and renewable energies (wind and hydro, particularly).Among many other sectors where opportunities exist are: telecommunications services and equipment; safety and security equipment and services; automotive aftermarket, medical equipment, and higher education services where Turkey sends large number of students to colleges and universities abroad.

In recent years, Turkey’s market reforms, strong growth and economic and political stability attracted Foreign Direct Investment (FDI). Despite a decline in FDI inflows as a result of the global economic crisis, cumulative FDI in Turkey now stands at USD84 billion and the Turkish government seeks to attract more. However, an area of concern is the relatively low level of green-field investment. This reflects continuing concerns by foreign companies about excessive bureaucracy, an unpredictable legal system and weak intellectual property protection.

In 2005, the EU and Turkey began formal EU accession negotiations. Turkey has adopted many European Union directives, regulations and laws in anticipation of accession. While continued delays have cooled popular interest in EU membership, Turkey’s political and business leadership remains committed to joining the EU, and understands that the process itself contributes to Turkey’s global competitiveness.

Market Challenges

The Republic of Turkey is a complex and challenging market requiring adaptability and persistence. Exporters face many of the same challenges that exist in other semi-developed countries, such as contradictory policies, regulations and documentation requirements, lack of transparency in tenders and other procurement decisions, and a time-consuming, unpredictable judiciary and legal and regulatory framework.

A strong streak of protectionism and mercantilist focus on trade balances still exist in many ministries and in the courts and this has been exacerbated by the recent global economic slowdown.

Careful planning and patience are the keys to success in Turkey.

Market Opportunities

The Republic of Turkey’s movement toward membership in the European Union is creating momentum to adopt European business regulations and standards in Turkey, thereby ultimately making it easier to sell and conduct business in this market. Similarly, reforms since 2001 have created a strong and stable economy that attracts foreign investment, which in turn will be followed by needed capital improvements and demand for new products and services.

Turkey is also the commercial hub of the region, so companies should consider using Turkey and Turkish partners to access business opportunities throughout Central Asia, the Caucasus, the Middle East and even Africa. Turkish partners know these neighbouring markets well, and are ready to take risks to make sales.

Market Entry Strategy

While there are many significant opportunities for foreign companies in Turkey, there are also obstacles accessing them. Any market entry strategy for Turkey should begin with a thorough understanding of the costs and benefits in the market.

One of the most successful proven ways to access the market quickly is to work with an experienced local partner. This partner could be in the form of a local representative, liaison office, agent, distributor, stocking distributor, etc. The local partner brings their knowledge of the local regulatory framework, language and contacts to the table. As the business develops, companies may open subsidiaries and make further local investments to expand their market share and control.

Using an Agent or Distributor

Unless a company has the staff and resources to open their own office in country, the most effective means of selling in Turkey is through a reliable and qualified local representative. Personal contact is extremely important in Turkish business in both private and public sectors. When dealing with government tenders, an agent is an absolute necessity in view of complicated bureaucratic procedures and the language barrier. One should carefully investigate the reputation and possible conflicting interests of any prospective representative or agent before signing contractual agreements.

Agency agreements under Turkish law are private contracts between two parties and their stipulations vary according to mutual consent. There are no fixed commission rates. It is recommended that sole manufacturer representatives/distributors be appointed for the entire country. This may also include other countries in the region. Agency agreements can be for a period of a year to be renewed depending on the success of the agent. In cases where a large volume of government business is expected, it is essential either to appoint an Ankara firm or an Istanbul firm with a branch office in the capital.

Establishing an Office

Turkey’s foreign investment policy has changed from a screening system to a monitoring system. Foreign investors are no longer required to obtain permission or approvals. In June, 2003, a new Foreign Direct Investment (FDI) Law was passed to “encourage FDI; protect the rights of foreign investors; to define “investment” and “investor” in line with international standards; to establish a notification-based system for FDI rather than screening and approval; and thus regulate the principles to increase FDI through established policies. This law establishes the treatment to be applied to FDI:

• There are no FDI related screening and approval procedures for setting up a business (company or branch) and share transfers except is some critical sectors. The conditions for setting up a business and share transfers are the same as for comparable local investors;
• There are no pre-approval requirements for most transactions - capital increase, change of business activity, etc. for foreign investment companies. Foreign capital companies follow the same procedures as local companies;
• There are no requirements for registration of license, know-how, royalty and technical assistance agreements;
• There are no minimum capital requirements;
• Foreign investors are able to form partnerships in Turkey. Any form of company included in the Turkish Commercial Code is acceptable for foreign investors;
• Valuations of international credit agencies as well as courts or competent authorities of the investor’s country will be accepted as valid in the determination of the share value for marketable securities that are contributed as capital in-kind. The law also confirmed foreign investors’ existing rights;
• The foreign investment legislation is based on the principle of equal treatment for domestic and foreign investors. Foreign investors have the same privileges and obligations as domestic capital;
• Free transfer of profits, dividends, proceeds from sale or liquidation of an investment, fees and royalties, interest payments on foreign loans is clearly restated;
• National or international arbitration is allowed for disputes arising from contracts involving government concessions as well as for disputes arising from agreements subject to private law, provided that the conditions in the related regulations are fulfilled;
• Foreign capital entities can employ foreign personnel in Turkey, provided that the work permits are obtained from the Ministry of Labour.

Liaison offices are special types of offices whose main activity is to conduct market research and feasibility studies and to accumulate investment opportunities in the Turkish market on behalf of their head office. They are not allowed to carry on any commercial activity. Foreign investors are required to obtain permission from the General Directorate of Foreign Investment under the Turkish Treasury to open a liaison office in Turkey. The initial permission is given for three years, which can be extended depending on the activities performed in the last three years and future plans of the head office.

A foreign company is free to choose between a corporation (Anonim Sirket--A.S, or "Societe Anonyme” type Corporation, limited liability company, or branch office as the form for its operations in Turkey. The “A.S.” form is more suitable for larger enterprises, since corporations can attract a large number of shareholders. The limited liability company form is more appropriate for the establishment of sales and distribution entities.

The Investment Support and Promotion Agency (ISPAT) outlines the registration and establishment of a company in Turkey on their website and claim that the process can be completed in one day. The first step in establishing a business in Turkey is to fill out a business registration form at the local trade registry office located at the local chamber of commerce. ISPAT describes the process as follows:

Submit the notarized articles of association;
Deposit 0.04 percent of the capital into either a state bank or the Central Bank of the Republic of Turkey.
Complete the company establishment form and register with the trade registry office.

To establish a company, ISPAT states that the following documents are required:

• Petition
• Establishment Statement
• Articles of Association
• Certificate of Activity
• Power of Attorney
• Signatory Declaration
• Original of Bank Receipt
• Chamber Registration Statement
• Letter of Commitment
• Proof of Residence and Board Resolution.

A Board Resolution is not necessary if the company is owned entirely by one individual, but the individual's identification certificate or passport is needed in addition to the aforementioned documents.

Franchising

Franchising has experienced strong growth in the Turkish market. The Turkish National Franchising Association, Ulusal Franchising Dernegi (UFRAD), a member of the International Franchising Association (IFA), is traditionally the first point of contact for new market entrants and is an excellent meeting point for prospective franchisers and franchisees. Foreign franchises in Turkey tend to be concentrated in fast food restaurant and apparel concepts, but other areas business types are increasingly represented as well.

The Block Exemption Decree (relief from the Free Competition Law) No. 1998/7 dated December 1998 is based on the European Community’s Law No. 4087/88. If a franchise agreement meets the requirements of this decree, it is exempt from the Free Competition Law, which is often in conflict with certain aspects of the franchising concept.

Direct Marketing

There are bureaucratic requirements, language obstacles, and transactional issues that require careful planning to overcome. Especially for those firms with a sales potential large enough to warrant it, a local affiliate may be a more effective way of selling to this market without an agent, representative or distributor.

Joint Ventures/Licensing

Although 100% foreign ownership is permitted (except in the Radio & TV Broadcasting), most investment in Turkey is in the form of joint venture or licensing operations. Most Turkish companies prefer to establish joint ventures with suppliers to overcome shipping costs and stiff European competition. European origin goods are largely duty-free due to the European Customs Union with Turkey, dating from 1996. Many firms have chosen local production as a way to profitably penetrate the Turkish market. Sophisticated business infrastructure such as legal support, financial and consulting services in most Turkish cities facilitates the formation of joint ventures.

Selling to the Government

The main law that regulates government procurement is the Public Tender Law No. 4734 and Law No. 4964-the amending law to 4734. Though Law No. 4734 was omnibus legislation incorporating all public sector enterprises, the amending legislation 4964 limited the Public Tender Law’s coverage such that the energy, water, transport and telecommunications sectors became exempt from the Public Tender Law. State owned corporations (state economic enterprises-SEE’s) generate revenues through sales of raw materials, semi-finished and finished products and services. SEE procurement regulations are largely based upon a government decree called "the Decree on the Operations of State Economic Enterprises" No. 233 of June 8, 1984, Turkey's Law of Obligations No. 818, dated April 22, 1926, and the Turkish Commercial Code No. 6762, dated June 29, 1956. Other exceptions are the Under Secretariat of Defence Industries (SSM) and the Ministry of National Defence. SSM procurement is financed off-budget, through special taxes, and is not subject to Law No. 2886.

An independent Public Procurement Authority was established as stipulated in Law No. 4734, which approves public tenders. Any objections to the tenders can be made to this Authority. It evaluates the objections and makes decisions in accordance with regulations. In public tenders, all certificates required in tender specifications, including a company establishment certificate, letters of authorization, job completion certificates, or any other certificate required must have an apostille. Otherwise, bidders can be disqualified. Due to these kinds of bureaucratic procedures, tender evaluations can be cancelled and re-tendered or can sometimes take months. Companies must submit their bids in original form before the deadline.

The Government of Turkey considers price, quality, financial credit terms, and length of repayment period the most important factors in making purchasing decisions. Other factors that affect sourcing decisions are supplier reputation, product reputation, product quality and reliability, compliance with EU regulations and standards, references, qualifications of the local partner and previous experience in dealing with particular suppliers. In GOT tenders, state organizations give particular importance to the way proposals are prepared and to adherence to administrative and technical terms and conditions. Generally, the validity of the proposal must be three to six months from the bid date and the same validity is expected for the bid bond (generally a stand-by letter of credit). If a company retracts its offer, the bid bond is forfeited. The bid bond is usually obtained from the actual supplier for three percent of the bid amount. The performance bond is usually six percent of the contract amount and is valid throughout the delivery or final acceptance beginning from the contract date. All bonds have to be counter-guaranteed (confirmed) by a Turkish national bank.

The GOT enacted the Electricity Market Law on February 20, 2001, which set forth a market that is competitive, transparent, and operates in accordance with provisions of private law. The law also established the Electricity Market Regulatory Authority (EMRA).

The Turkish Parliament passed the Natural Gas Market Law No. 4646 on April 18, 2001. This law liberalized the trading of natural gas and authorized the same independent regulatory body for electricity trading to also regulate the natural gas market (EMRA). Companies are free to supply natural gas at wholesale to customers buying in excess of one million cubic meters of gas per year. EMRA has been issuing the required licenses. This law also permits the private sector to obtain licenses to distribute gas in cities.

A Petroleum Market Law enacted on December 4, 2003, Law no. 5015, was enacted to regulate the Petroleum Products Market and the delivery of petroleum supplied from domestic and foreign sources to consumers, directly or after processing, in a reliable, cost-effective manner within a competitive environment. In accordance with this Law, holding a license is obligatory for the following petroleum activities:

• Performing refining, processing, lube oil production, storage, transmission, eligible consumer and bunker activities and to establish and/or operate facilities for the performance of aforesaid activities;
• Performing liquid fuel distribution, transportation and vendor activities. Energy Market Regulatory Authority may impose exemptions for holding licenses for transmission and processing activities in line with the principles and criteria to be developed. Licenses are not granted based on commitments.

Distribution and Sales Channels

Istanbul and the greater Marmara region is the centre of most distribution in Turkey. Even if end users headquarters are located outside of this urban area, most channels of distribution and main sales offices are located in Istanbul and radiate out, in many cases to a larger region encompassing many neighbouring countries. Depending on the location of consumers/end-users, most distributors have a dealer network throughout the country or in areas where the product is most used. In the case of several industrial sectors, a dealer/repair network may be required. Commission representatives/agents, on the other hand, periodically visit their customers together with their principals to maintain strong personal contacts, which is a very important marketing tool in Turkey.

Selling Factors/Techniques

In employing a manufacturers’ representative or agent in Turkey, a company is advised to provide full support with regard to literature, technical information, advertisement and promotional materials. Possible government buyers and potential private-sector importers should receive catalogues and other literature clearly indicating the name and address of the local representatives/distributors. A common and effective best practice is to invite the representative/agent to UK every year for an annual sales strategy meeting. Both agents and, if possible, their principals, should periodically visit existing and potential customers since the importance of personal contact in Turkey cannot be overemphasized.

Especially in larger Turkish cities, international trade promotional events, such as trade fairs, exhibitions and seminars, are common methods of sales promotion. These fairs are also opportunities to assess and meet existing competition, since most major foreign and local suppliers participate in such events. The catalogues of the events serve as 'trade lists' on specific product categories. Currently, there are about seventy international fair and exhibit organizers in Turkey.

Electronic Commerce

Statistics show that Turkey has the 12th highest number of internet users among countries world-wide. There were 35 million Turkish internet users in 2010, up from 4 million in 2002, and 50 million credit card users, up from 16 million in 2002. The majority of E-commerce transactions in Turkey are in the field of Internet banking. Local industry sources report that nearly 70% of all electronic commerce transactions are in on-line banking and financial services. The concept of Internet banking in Turkey is popular given the high cost of maintaining bank branches throughout the country. Apart from increasing customer service, the commercial banks realized that lower transaction costs for internet banking was attractive to consumers.

Other e-commerce business activity includes ticketing, travel, food delivery, entertainment, clothing, and consumer products. The majority of commercial sites were developed without focusing on IT integration of overall corporate operations and instead focused on order taking and transaction clearance. There is a lot of room for development and new concepts. Turkish E-commerce companies generate only a small percentage of gross revenue from electronic transactions. The Turkish Government also gives importance to e-government activities such as tax payments over the Internet, applications for passports, and many other paperless application procedures.

A new Turkish Commercial Code will come into effect in July of 2012 requiring, among other things, that businesses have a web-site meeting a number of minimum requirements. This may further spur various forms of electronic commerce.

Trade Promotion and Advertising

Chambers of Commerce and Industry, various associations, and specific sector publications serve as potential channels for advertisement. Television commercials or ads in major newspapers are also highly effective. In Turkey, there are over 20 national TV channels. Major newspapers include Cumhuriyet, Dunya, Hurriyet, Milliyet and Sabah, all of which have their headquarters in Istanbul with branch offices in Ankara.

The country's foremost commercial/economic daily newspaper is Dunya. The leading English language newspaper is the Turkish Daily News. Major weekly periodicals are: Anka Haber (economy); Barometre (economy); Briefing (weekly inside perspective on Turkish political, economic and business affairs); Detay (economy-also publishes tenders on equipment procurement and infrastructure projects); Eba Newsletter (economy/English daily); Eba Report (a weekly special survey of Turkish business, industry and business contacts); and Tebanews (weekly magazine in English on tenders, investment projects and the economy). There are many periodicals issued monthly. The most important publications in this category are: Bilgisayar (computer and related equipment); Bilisim (computer and related equipment); BT/Haber (weekly/computer and related equipment); Dunya Insaat (construction machinery); Finans Dunyasi (finance and economy); Telekomunikasyon (telecom); and Turkey (economy) and Yazilim Donanim (software).

Pricing

Price has traditionally been the most important consideration in government tenders. Private sector buyers may emphasize quality and value, but price remains a significant issue. In both public and private sales, creative financing which reduces upfront cash outlays or extends the terms of payment can provide greater value to clients. While imports from European Union and EFTA countries are exempt from duties.

Sales Service/Customer Support

Proper after sales service and customer support can be a competitive advantage for exporters to Turkey. All suppliers should identify local agents/distributors with the necessary service and maintenance capability. Depending on the level of business activity, companies may also consider establishing its own office in Turkey to provide this type of service.

Protecting Your Intellectual Property

Several general principles are important for effective management of intellectual property (“IP”) rights in Turkey. It is important to have an overall strategy to protect your IP. Rights must be registered and enforced in Turkey, under local laws, otherwise your trademark and patent registrations will not protect you in Turkey. There is no such thing as an “international copyright” that will automatically protect an author’s writings throughout the entire world. Protection against unauthorized use in a particular country depends, basically, on the national laws of that country.

Registration of patents and trademarks is on a first-in-time, first-in-right basis, so one should consider applying for trademark and patent protection even before selling products or services in the Turkey market. It is vital that companies understand that intellectual property is primarily a private right. It is the responsibility of the rights' holders to register, protect, and enforce their rights where relevant, retaining their own counsel and advisors. Companies may wish to seek advice from local attorneys or IP consultants who are experts in Turkey law.

It is always advisable to conduct due diligence on potential partners. Negotiate from the position of your partner and give your partner clear incentives to honour the contract. A good partner is an important ally in protecting IP rights. Consider carefully, however, whether to permit your partner to register your IP rights on your behalf. Doing so may create a risk that your partner will list itself as the IP owner and fail to transfer the rights should the partnership end. Keep an eye on your cost structure and reduce the margins (and the incentive) of would-be bad actors. Projects and sales in Turkey require constant attention. Work with legal counsel familiar with Turkey laws to create a solid contract that includes non-compete clauses, and confidentiality/non-disclosure provisions.

It is also recommended that small and medium-size companies understand the importance of working together with trade associations and organizations to support efforts to protect IP and stop counterfeiting.

Leading Sectors for Export and Investment

Commercial Sectors

• Oil and Gas Sector Opportunities
• Education Services
• Construction Machinery
• Defence Equipment
• Health and Medical Technologies
• Electric Power Prospects
• Information and Communication Technologies
• Plastics Materials and Processing Machinery
• Automotive Parts and Equipment

Agricultural Sectors

• Cotton
• Soybeans
• Live Cattle
• Rice