As a developing country with great development potential within the context of doing business, Turkey has attracted enormous volumes of foreign direct investments (FDI) . There are many opportunities that foreign companies can take advantage of, including the large and fast-growing domestic market, an improving institutional environment, various investor-friendly policies in regional and centrally controlled special economic and high-tech development zones, an ever improving quality of human resources, and better infrastructure. 

Despite these opportunities, foreign companies increasingly face a variety of challenges especially during the “soft-landing” of Turkish economy. Perhaps due to the clear signals in 2018 of the anti-globalization tendency, the IMF forecasts decreases in some of the main economic factors in years ahead, not only in Turkey but also in many other major economic entities. The increasingly unfavorable international environment will have significant influences on foreign companies in Turkey, such as causing fiercer competition from local companies who shift back to the domestic market. Another notable disadvantage that foreign companies cannot ignore is the liability of being outsiders. 

Doing business in a foreign country is not an easy task, and the dynamic Turkish market contributes to an even more challenging environment. Despite its impressive economic development, Turkey is still a transitional economy, as it is arguably still moving from a position were few market supporting institutions existed. Thus, it may still be problematic to apply management approaches from advanced countries in Turkey.

Regulatory challenges

Foreign businesses in Turkey face government, legal, and regulatory challenges on two main fronts. First, Turkey is an emerging market, characterized by a comparatively weak and fast evolving judicial and regulatory institutional environment. There is great flux in regulatory change across a broad range of spheres, including: environmental regulation and pollution prevention; capital/financial sector regulation; housing and real estate regulation; labor markets; and digital media content, to name but a few areas. Related government procedures, moreover, are generally less transparent. This can mean that relatively standard everyday tasks, like obtaining permit and product approvals, for example, may potentially become a drain on management resources.

Second, and arguably of far greater importance owing to their asymmetric impacts, local and central level governmental actors can potentially exploit local institutional fragility and regulatory flux to preferentially favor and support domestic firms.

The Turkish business environment is constantly evolving, with new legislation and regulations being introduced regularly. Foreign companies must stay updated on changes and adapt their strategies accordingly. Engaging in thorough research, attending industry-specific seminars, and working closely with local advisors can ensure that businesses remain compliant and are well-prepared to tackle any bureaucratic challenges that may arise.

Innovation management challenges

Innovation management in Turkey is an important topic for both foreign firms and domestic stakeholders. It has been manifested largely through collaborative partnerships between foreign firms and domestic ones in the form of joint ventures in the last four decades. In the form of international partnerships, learning from collaboration partners can contribute to capacity building and industry upgrading. Despite many joint ventures facilitating knowledge, learning, and gaining experience in the development of innovation capabilities, foreign partners largely prefer not to share the core of innovation with Turkish domestic partners. This is in part due to the lack of intellectual property rights protection. Furthermore, when regulatory frameworks allowed, joint ventures tend to be converted into foreign wholly-owned subsidiary in Turkey. In this way, foreign firms may develop and protect innovation within organizational boundaries. In addition, Turkey’s economic development demands the transformation from “Made in Turkey” to “Created in Turkey”, in order to move up the global value chain in global competition. Importantly, Turkey’s innovation challenge is to overcome the middle-income trap to become an innovation economy.

Human resource management challenges

Along with the development of the Turkish economy, HRM has become an increasingly important topic in Turkey. Foreign capital brought modern HRM into Turkish market, leveraging from foreign-owned enterprises (FOEs) to joint ventures (JVs) and further to large domestic companies. Foreign companies introduced formalized high-performance HR practices, which have been attractive to Turkish employees. The transitional Turkish employment system has gradually changed from capital-oriented to talent-oriented after several decades of industrialisation.

Complex Bureaucracy

Doing business in a foreign country can be a daunting task, particularly when faced with a complex bureaucracy. Turkey, with its rich history and vibrant economy, offers great potential for foreign companies looking to expand their operations. However, there are several official rules, regulations, and processes that can pose challenges for these companies. The difficulties faced by foreign companies in adapting to the Turkish way of doing business need to be explored and strategies foreign companies can employ to navigate the complexities of the bureaucratic landscape should be discussed.

• Interpretation of Legislation and Regulations: One of the significant hurdles for foreign companies in Turkey is the varying interpretation of legislation and regulations by the bureaucracy. This lack of consistency and transparency can lead to confusion and uncertainty when it comes to compliance. Different interpretations may arise due to regional variations or differing opinions among government officials, making it difficult for businesses to navigate the regulatory environment effectively.

• Unpredictable Attitude of Bureaucracy: Another challenge is the unpredictable attitude of the Turkish bureaucracy. While some officials may be supportive and efficient in processing applications and providing necessary permits, others may exhibit a more sluggish approach. This unpredictability can result in delays, increased costs, and frustration for foreign companies attempting to establish or expand their presence in Turkey.

Strategies for Overcoming Bureaucratic Obstacles

• Engaging Law Firms: Law firms, like Bicak Law Firm, that specialize in the Turkish market can offer expert guidance to foreign companies. These professionals possess in-depth knowledge of local laws, regulations, and bureaucratic practices. They can assist companies in understanding the intricacies of the system, ensuring compliance, and providing timely advice on regulatory changes or potential pitfalls. Engaging such firms can save foreign companies valuable time, resources, and unnecessary complications.

• Collaborating with Local Partners: To mitigate the challenges of bureaucracy, foreign companies can consider partnering with local entities. Local partners can provide invaluable insights into navigating the regulatory landscape, interpreting legislation correctly, and building relationships with key government officials. Collaborating with established local businesses not only helps in understanding the cultural nuances but also streamlines bureaucratic processes by leveraging their existing networks and knowledge.

• Developing Government Relationships: Building relationships with government officials and relevant authorities is crucial for foreign companies operating in Turkey. Establishing open lines of communication and engaging in proactive dialogue can help foster a better understanding of the company’s goals and needs. Attending industry events, conferences, and seminars can provide opportunities to network with officials, showcase expertise, and gain insights into government policies. These relationships can prove beneficial when navigating bureaucratic processes and expediting decision-making.

By embracing these strategies, businesses can unlock the full potential of the Turkish market and thrive in this dynamic and vibrant economy.

Communication Challenges: Language Disparities

In major cities like Istanbul, Izmir, and Ankara, English is widely spoken, particularly among the younger generations such as Millennials and Generation Z. English fluency in these urban areas facilitates business interactions and negotiations. However, in smaller towns and less-developed regions, the number of English speakers is considerably lower. This language disparity can pose communication challenges for foreign companies operating outside major cities.

To overcome communication barriers, particularly in areas where English fluency is limited, utilizing written communication can be a more effective approach. Written documents, such as emails, formal letters, and contracts, provide clarity and ensure that the intended message is accurately conveyed. It is crucial to articulate thoughts and expectations clearly, as relying solely on verbal communication may result in misunderstandings.

Cultural Differences: Relationship-Building and Hospitality

Turkish culture places great value on personal relationships and trust in business dealings. Building a strong rapport with potential partners or clients is essential for success. Establishing personal connections through face-to-face meetings, social gatherings, and friendly conversations helps foster trust and credibility. Taking the time to understand and appreciate Turkish customs, traditions, and social norms demonstrates respect and facilitates smoother business interactions.

Friendliness and hospitality are deeply ingrained in Turkish culture. Engaging in business discussions and negotiations over meals, be it lunch or dinner, is a common practice. These informal settings provide opportunities to connect on a personal level, strengthen relationships, and create a conducive environment for open dialogue. Appreciating and participating in this aspect of Turkish business culture can help foreign companies build lasting connections and navigate the market more effectively.

Strategies for Overcoming Communication and Cultural Barriers

• Invest in Language Resources: For foreign companies operating in Turkey, it is advisable to invest in language resources. Hiring local staff who are fluent in Turkish can greatly enhance communication capabilities and bridge the language gap. These individuals can act as interpreters, translators, or language facilitators, facilitating smoother interactions with local partners, suppliers, and customers.

• Cultural Sensitivity and Adaptation: To navigate cultural differences successfully, foreign companies should demonstrate cultural sensitivity and adaptability. Taking the time to learn about Turkish customs, traditions, and business etiquette is crucial. Displaying respect, courtesy, and patience in all interactions goes a long way in building trust and fostering fruitful partnerships.

• Engage Local Consultants or Advisors: Working with local legal consultants or advisors who possess a deep understanding of the Turkish market and culture can be immensely beneficial. These professionals can offer valuable insights into local business practices, help navigate cultural nuances, and provide guidance on effective communication strategies. Their expertise and network can significantly contribute to the success of foreign companies operating in Turkey.

Currency Risk: Navigating Fluctuations

When engaging in international trade, businesses must be mindful of the potential risks associated with currency fluctuations and payment issues. Turkey, as a dynamic market, has experienced significant currency rate fluctuations in recent times, which can pose challenges for companies exporting to and importing from the country.

• Significance of Currency Fluctuations: The Turkish market has witnessed considerable currency rate fluctuations, impacting the value of the Turkish lira (TRY). These fluctuations can have adverse effects on businesses engaged in foreign trade, particularly for companies whose revenues and expenses are denominated in different currencies. Sharp currency devaluations can lead to increased costs, reduced profitability, and financial uncertainties.

• Discussing Exchange Rate Expectations: To mitigate currency risk, it is advisable for companies to proactively discuss and agree on exchange rate expectations with their local partners. Open communication regarding exchange rate forecasts, anticipated fluctuations, and potential strategies to address them can help both parties plan and prepare for potential challenges. By establishing a mutual understanding, businesses can minimize surprises and work together to find suitable solutions.

Payment Risks: Ensuring Secure Transactions

Inclusion of FX Rates and Payment Terms in Contracts: To mitigate payment risks, it is essential to incorporate foreign exchange (FX) rates and payment terms into contracts before commencing business in the Turkish market. Clearly defining the agreed-upon exchange rate and payment conditions provides clarity and protects both parties from potential payment disputes. Including clauses that address currency fluctuations, late payment penalties, and dispute resolution mechanisms can provide a framework for resolving any issues that may arise.

• Utilizing Hedging Mechanisms: Companies can consider utilizing hedging mechanisms to mitigate currency risk and ensure more stable cash flow. Hedging involves using financial instruments, such as forward contracts or currency options, to lock in exchange rates for future transactions. These instruments can help companies hedge against adverse currency movements and provide more predictability in their financial planning.

• Engaging Trade Finance Services: Trade finance services, such as letters of credit (LCs) and export credit insurance, can provide additional protection against payment risks. LCs provide a secure payment method for international transactions, ensuring that payment is made once certain conditions are met. Export credit insurance protects businesses against the risk of non-payment by foreign buyers, providing coverage for commercial and political risks.

• Conducting Due Diligence on Counterparties: Before entering into business relationships, conducting thorough due diligence on potential local partners is crucial. Verifying their financial stability, reputation, and payment history can help mitigate the risk of payment defaults. Working with reputable local law firm, like Bicak, or engaging the services of due diligence can provide valuable insights and assist in assessing the creditworthiness of potential business partners.

Understanding Local Competition

When foreign companies plan to establish a presence in Turkey, they must contend with strong local competition that has already established its foothold in the industry. These local players, often able to offer products at lower prices due to cost advantages, pose a significant hurdle for foreign brands.

• Established Local Players: Turkey’s market is characterized by local companies that have been operating in various sectors for many years. These established players have built strong brand recognition, loyal customer bases, and supply chain networks. Leveraging their local knowledge and cost advantages, they can often offer products at competitive prices.

• Cost Advantage: One of the reasons local competitors can offer products at lower prices is their access to relatively lower production costs. Domestic companies benefit from local supply chains, lower labor costs, and better understanding of the local market dynamics. These factors allow them to price their products more competitively compared to foreign brands that may face higher production and operational costs.

• Import Taxes and Consumer Preferences: Import taxes and regulations in Turkey can increase the prices of foreign goods, making them less attractive to cost-conscious consumers. Turkish consumers also tend to have a preference for local brands, driven by factors such as national pride, trust in domestic products, and familiarity with local tastes and preferences. Foreign companies must recognize and address these consumer preferences to establish a strong foothold in the market.

Embracing Localization for Success

Import taxes and consumer preferences for local goods necessitate a focus on localization to effectively address the market’s demands. What are the main strategies for foreign companies to thrive by embracing localization?

• Market Research and Understanding: Thorough market research and understanding the specific needs and preferences of Turkish consumers are vital for foreign companies. This knowledge will help tailor products, services, and marketing strategies to better align with local demands. Identifying gaps in the market, areas for differentiation, and consumer pain points will enable foreign brands to develop unique value propositions and stand out amidst strong local competition.

• Cultural Sensitivity and Brand Positioning: Adapting to local culture and values is essential for successful market penetration. Foreign companies should invest in building brand positioning that resonates with Turkish consumers. This may involve incorporating local elements in branding, marketing campaigns, and product design. Demonstrating an understanding of Turkish customs, traditions, and societal values will help build trust and establish a strong emotional connection with the target audience.

• Collaborating with Local Partners: Establishing partnerships with local companies can provide foreign brands with valuable insights, market access, and distribution networks. Collaborating with trusted local partners can help navigate the complex business landscape, understand customer preferences, and tap into established supply chains. Local partnerships facilitate localization efforts and enable foreign companies to leverage the expertise and resources of local players.

• Quality and Differentiation: To compete effectively in the Turkish market, foreign companies should focus on delivering high-quality products or services that offer unique value propositions. Emphasizing superior quality, innovation, and differentiation can help overcome price-based competition and capture the attention of discerning Turkish consumers. Highlighting the advantages of imported goods, such as technological superiority, premium ingredients, or unique features, can justify a higher price point and sway consumer preferences.

Navigating Regional Differences

Turkey is a country of diverse landscapes, rich history, and varied cultural traditions. Within this vibrant nation, regional differences play a significant role in shaping the economic landscape, investment opportunities, and cultural nuances. For overseas companies planning to expand their operations in Turkey, understanding these regional variations is crucial. We  provide insights to help overseas companies to explore the impact of regional differences in Turkey and to make informed decisions about investments and distributor appointments.

• Economic Development: There are noticeable economic disparities between the eastern and western regions of Turkey. The western regions, including cities like Istanbul, Izmir, and Ankara, tend to be more developed, with robust infrastructure, higher per capita income, and greater investment opportunities. These areas offer a more favorable business environment and access to skilled employees, making them attractive for foreign companies seeking to establish a presence in Turkey.

• Industry Concentration: Different regions in Turkey have distinct industry concentrations based on available resources and historical factors. For example, Istanbul is known for its vibrant services sector, including finance, tourism, and commerce, while the Aegean region is renowned for agriculture, textile, and manufacturing industries. Understanding these regional strengths and specializations can help foreign companies identify the most suitable locations for their specific industry or sector.

• Diversity of Culture: Turkey is known for its rich cultural heritage, and this diversity is evident in the variations between regions. Each region has its own customs, traditions, dialects, and cuisine, contributing to a rich tapestry of cultural experiences. It is important for foreign companies to recognize and respect these differences to effectively engage with local communities and build strong connections.

• Consumer Behavior: Consumer preferences and behaviors can also vary across different regions of Turkey. Factors such as local traditions, purchasing power, and lifestyle choices influence consumer preferences. Foreign companies must conduct thorough market research to understand the unique characteristics of their target regions and tailor their marketing strategies, product offerings, and pricing to align with local demands.

• Market Research and Analysis: Before making investment or distributor appointment decisions, overseas companies should conduct comprehensive market research and analysis. This includes evaluating regional economic indicators, industry clusters, consumer demographics, and market potential in each target region. Understanding the regional dynamics will help identify the most promising locations and assess market opportunities for specific products or services.

• Local Partnerships and Networks: Establishing partnerships with local companies or distributors can provide valuable insights into regional dynamics, consumer preferences, and business practices. Local partners can help foreign companies navigate the regional differences, establish market presence, and leverage existing networks. Collaborating with established local entities can enhance market penetration and facilitate a deeper understanding of the regional nuances.

• Flexibility and Adaptability: Foreign companies should approach the Turkish market with a mindset of flexibility and adaptability. Recognizing and respecting regional differences, both culturally and economically, is crucial for successful business operations. By adapting strategies, products, and marketing approaches to suit the specific characteristics of each region, foreign companies can establish stronger connections with local consumers and gain a competitive advantage.

Legal Expertise and Compliance

The Turkish legal system has its intricacies and nuances, and foreign companies may struggle to comprehend the laws and regulations applicable to their specific industry or business activities. A Turkish law firm, like Bicak, can provide in-depth legal expertise and guidance, ensuring that foreign companies understand the legal framework, comply with regulations, and navigate the system effectively.

One of the crucial aspects of doing business in Turkey is ensuring compliance with local laws and regulations. A Turkish law firm can assist foreign companies in conducting thorough due diligence, identifying potential legal risks, and developing strategies to mitigate them. From contract drafting and review to intellectual property protection and employment law compliance, legal experts can ensure that businesses operate within the boundaries of the law.

Establishing a legal entity in Turkey is a critical step for foreign companies entering the market. A Turkish law firm can guide businesses through the company formation process, ensuring compliance with the required legal procedures, documentation, and registrations. They can assist in selecting the most appropriate legal entity structure, such as a limited liability company (LLC) or joint-stock company (JSC), based on the company’s specific needs and objectives.

Entering into contracts and agreements is a fundamental aspect of doing business. A Turkish law firm can provide valuable support in negotiating, reviewing, and drafting contracts with local partners, suppliers, distributors, or clients. Their expertise ensures that contracts protect the interests of foreign companies, minimize legal risks, and establish clear rights and obligations for all parties involved.

In the event of a dispute or legal conflict, a Turkish law firm can provide expert advice and representation. They can assist foreign companies in resolving disputes through negotiation, mediation, or, if necessary, litigation. Having legal professionals familiar with the local judicial system and dispute resolution processes can be invaluable in achieving favorable outcomes and protecting the interests of foreign businesses.

Protecting intellectual property rights is crucial for foreign companies operating in Turkey. A Turkish law firm can guide businesses in understanding and navigating the complexities of intellectual property laws, including trademarks, copyrights, and patents. They can assist in registering and enforcing intellectual property rights, ensuring that foreign companies’ innovative products or brands are safeguarded.

To conclude, doing business in Turkey can present various challenges, from legal complexities and compliance requirements to contractual negotiations and dispute resolution. Engaging the services of a reputable Turkish law firm can provide foreign companies with the necessary legal expertise and support to overcome these challenges successfully. With their in-depth knowledge of the Turkish legal system, compliance requirements, and local business practices, a Turkish law firm can help foreign companies navigate the intricacies of the market, minimize legal risks, and ensure a smooth and compliant business operation. By partnering with a trusted legal advisor, foreign companies can focus on their core business activities while having the peace of mind that their legal needs are being handled with professionalism and expertise.