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Should Turkey succeed in its aim of joining the EU, it will be the second
most populous nation in the European bloc after Germany. But unlike Germany and
the other ageing populations of western Europe, the majority of Turkey’s 73
million population is under the age of 35, representing a formidably large

After a decade of hyperinflation, currency crash and political crises, Turkey
is showing significant progress on many fronts, underpinned by World Bank and
International Monetary Fund programmes since 2000. The country began a new
stand-by agreement in 2005 that is set to last for three years. The economy is
in growth mode and inflation has been pegged back. On 1 January 2005 the
currency consolidated on the basis of one new Turkish lira per 1,000,000 old, so
the exchange rate is now a respectable looking YTL2.29 to the pound.

Rating agency Moody’s estimates GDP growth as around 5% in 2005, having
stabilised from just short of 9% the previous year. It predicts continued growth
at 5% levels over the next couple of years. The critical inflation rate is now
down to double figures and tight government controls look like keeping it there.

At present Turkey’s long-term foreign debt is rated Ba3 by Moody’s and BBby
Standard & Poor’s, with outlook “stable” and “positive” respectively.

S&P points to the progress Turkey has made over the past year on
structural reform, especially privatisation. Divested assets in 2005 were
estimated at $22bn.

Political and regulatory environment

Moody’s describes the 2002 election of the current government as a “critical
turning point in Turkey’s modern history” that has tempered the country’s
history of chronic political and financial instability. Its success has created
fertile conditions for growth and Turkey’s export sector has been booming on the
back of it. But how easy a place is Turkey to do business?

The World Bank ranks Turkey 93rd out of 155 countries for ease of doing
business, protecting investors, paying taxes, trading across borders, enforcing
contracts and closing a business. This puts it between Serbia and Montenegro and
Nigeria. Not inspiring, perhaps, but Turkey is a large and complex market.

Doing business there

The corruption index puts Turkey equal 65th with Peru and Burkina Faso, with
a score of 3.5 on a scale of 1 to 10 – Iceland tops the ratings with 9.7 while
last-placed Chad scores 1.7. But it is important to remember that the rating is
based on perceptions of corruption. People who actually do business
there, such as the CEO of heating appliance manufacturer Baxi (see case study
below), typically say how business-positive Turkey is as a place to operate.

It’s a view supported by Mustafa Erim, senior manager with the
PricewaterhouseCoopers emerging markets team. He says that Turkey’s workforce
can be a major asset.

“It is a highly qualified, skilled and cost-effective labour force, well
known for its learning capacity,” Erim says. “With a working average for an
employee of 280 days per year and nine hours per day, Turkey is the third
hardest-working country in the world.”

Management/accountancy staff

Erim adds that well-qualified executives are available, as well as competent
engineers, finance, sales and HR managers who meet international standards and
speak major European languages, especially English. Many major executive search
firms have offices in Turkey.

The international accounting firms also have local offices producing a flow
of locally trained accountants and financially able people. Many Turkish
business people return home after training abroad in multinational companies and
institutions and bring with them skills to add to their knowledge of their home

Making a success of business

Although 100% foreign ownership of businesses is permitted in Turkey, most
companies set up joint ventures or distribution deals, making their most
valuable asset an able and trustworthy partner who knows the market for their
products or services and can negotiate Turkish bureaucracy. Tackling red tape is
a major and time-consuming risk – even if you know the language.

In Turkey, traditional respect for professional qualifications often means
that lawyers, engineers, doctors and others are greeted with their professional
title. Rank in an organisation is also more respected than in the UK.

Although Turkey is a secular country, most Turks are Muslims. Many pray
several times a day and respect Ramadan and other Islamic customs. It is
important to pay heed to this when arranging meetings in the country.

Turks are also strongly family oriented and may not separate their personal
life from their business life as rigidly as may be the case in Britain.

The bottom line in Turkish business is the personal relationship. Strong
business relationships are forged through trust, good personal interaction and
evident mutual benefit. Build the personal relationship first and the business
will follow.

Case study: Local hero

“When times got tough,” says Mark Edwards, CEO of Baxi Group, “we were able
to continue to trade profitably when many were finding that difficult to do.”

The Derby-based supplier of space and water heating appliances has a £680m
turnover, employs 5,600 people across Europe and has a longstanding joint
venture in Turkey that distributes and sells boilers in the Turkish market.

“We are also developing our capability for low-cost manufacturing in the
country as part of our joint venture,” says Edwards.

Baxi’s relationship with its Turkish partner Baymak stretches back 15 years,
during which time Turkey has been through hyperinflation, currency devaluation,
political crises and earthquakes, but Edwards says the strength of the joint
venture has been critical to their success.

“We are primarily a western European operator and Turkey is no different to a
number of new markets we are entering where we don’t know the local market
conditions; we needed a partner we could rely on.

“Baymak’s management team leader Murat Akdogan has very clear ideas on how to
operate in high-inflation and declining-currency markets. Having worked in
similar markets myself I recognised that all the principles he was applying were
the keys to success in those sorts of economic conditions. But it needed someone
like him to carry them out. You can’t do them at arm’s length.”

As part of the joint venture, Baxi built a factory to serve the local market.
The plant also produces solar panels, water heaters, boilers and pumps for
export to western Europe.

Edwards is impressed with the quality of the output and the Turkish workforce
and is in no doubt how crucial his Turkish partner has been.

“We would not have been as successful as we have been without Murat Akdogan,”
he says. “There is no question about that.”

Inflows and outflows

Exports $46.6bn



Motor vehicles/parts




Agriculture products




Imports $65.6bn

Machinery & transport equipment






Net foreign direct investment  $5.0bn