According to World Bank’s Ease of Doing Business Report in 2020, Turkey ranks 33rd out of 190 economies. Compared to previous years, there are significant improvements overall. With its population which is amongst the youngest in Europe, strategic geopolitical location and a growing middle class, Turkey is an irresistible market for many overseas companies.
Still, like in every country, there are certain challenges overseas businessmen face while doing business in Turkey. Turkey offers a promising, but also complicated and challenging market. It requires that international firms chasing market opportunities in Turkey are adaptable and persistent.
1. Complex Bureaucracy & Regulatory Issues
There are a number of official rules and processes which make it difficult for foreign companies to adapt into a Turkish way of doing business. In certain cases, legislations and regulations change suddenly, sometimes over a night. It is indeed a challenge for companies to follow and quickly adapt into the unpredictable regulatory environment. Therefore, overseas companies may need to collaborate with local partners, consulting companies or law firms so that overcome the obstacles associated with bureaucracy.
2. Communication Problems & Cultural Differences
English language is widely spoken in major cities in Turkey, such as Istanbul, Izmir and Ankara. Specifically, the Millennials and Generation Z that are based in the major cities speak English smoothly, however the number of English speakers in towns and less-developed areas is low. In certain cases, this may result in communication problems while doing business in Turkey. In these circumstances written format may prove more effective communication than speaking.
Turkish people value personal relationships with international partners. Friendliness and hospitality are key elements of the Turkish culture. Therefore, building a relationship first is key to succeed in the Turkish market. Business discussions and negotiations over lunch or dinner are typical and normal practices within the Turkish business culture.
3. Currency Risk & Payment Risks
Recently, currency rates fluctuated significantly in the Turkish market which posed problems for companies exporting to and importing from Turkey. Due to this variation, payment problems are likely to occur while doing business with local companies. It is recommended to discuss these issues in advance and agree on a certain exchange rate level with the local partner. In addition, it is advised to include FX rates and payment terms in the contract, prior to starting a business in the Turkish market.
4. Strong Local Competition & Localization Requirements
Turkey is a vibrant market with constantly changing dynamics. When a foreign company plans to enter the Turkish market, it should bear in mind that there are local competitors which have already been operating in the sector for many years. Mainly due to relatively low costs, local players are likely to offer products at lower prices compared to foreign brands. Additionally, extra import taxes increase the price of the goods, which in result, leads consumers to prefer local brands, unless the international offer is of higher quality. Strong local competition also requires foreign companies to localize their offer so that better address the demand in the market.
5. Regional Differences
In general, there are differences between the east and west parts of Turkey. In terms of economic development, investment opportunities and talented employees, the western regions of Turkey offer better opportunities. Similarly, there is a diverse culture varying from region to region and even city to city within the same region. Therefore, it is advised that overseas companies evaluate the regional differences prior to the investment or distributor appointment decision.