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Opportunities at a Glance

Turkey is a growing economic player, as being a member of the G20. Turkey is still positioned to act as a future powerhouse within the region. The Doing Business 2014 data for Turkey lists the overall "Ease of Doing Business" rank (out of 189 economies) and the rankings by each topic of Turkey. According to this rank, Turkey was ranked 72 in 2013 and ranks 69 in 2014.

Founders enjoy:

  1. Fast start: There is a relatively easy startup build with a procedure lasting for 6 days in average.

  2. Incentive Schemes: They consist of General Investment Incentive Scheme, Regional Investment Incentive Scheme, Large Scale Investment Incentive Scheme, Strategic Investment Incentive Scheme, which involve various of the followings: VAT (Value Added Tax) Exemption, Customs Duty Exemption, Tax Reduction, Social Security Premium Support (Employer’s Share), Income Tax Withholding Allowance, Social Security Premium Support (Employee’s Share), Interest Support, Land Allocation, VAT Refund.

Turkey has an important geographical location situated in the middle of Europe, Russia, Middle East and Asia. There is a high potential for growing and diversification. While there are still challenges in areas such as lack of venture capital investments in, the advantages make it a difficult country to ignore. Turkey is certainly worthy of consideration when evaluating where you want the hub of your tech startup to be.

Competitive Advantages

The Easiness of Doing Business

According to the regulations of Ministry of Commerce and Industry:

  1. 100% foreign shareholders allowed.

  2. Only 2 shareholders required

  3. Equal treatment for domestic and foreign shareholders.

  4. Capital requirement is TL 5,000 < about €2,500>

  5. Directors can be of any nationality.

  6. Automatic membership of the Chamber of Commerce for your company.

  7. No obligation requiring Turkish participation in the management of your company.

These are competitive advantages compared to other countries, since such a large option and opportunities are not provided. Steady regulatory improvements are making it easier to set up and run a business in Turkey.

Government supports

Entrepreneurs report an increase in government programs to support start-up businesses. As it is stated above these are General Investment Incentive Scheme, Regional Investment Incentive Scheme, Large Scale Investment Incentive Scheme, Strategic Investment Incentive Scheme. Their advantages are shown in the table below with the regions below this table.



These advantages can be explained as:

VAT Exemption:

In accordance with the measure, VAT is not paid for imported and/or domestically provided machinery and equipment within the scope of the investment encouragement certificate.

 

Customs Duty Exemption:

Customs duty is not paid for the machinery and equipment provided from abroad(imported) within the scope of the investment encouragement certificate.

 

Tax Reduction: 

Calculation of income or corporate tax with reduced rates until the total value reaches to the amount of contribution to the investment according to envisaged rate of contribution.

 

Social Security Premium Support (Employer’s Share):

The measure stipulates that for the additional employment created by the investment, employer’s share of social security premium on portions of labor wages corresponding to amount of legal minimum wage, will be covered by the Ministry.

 

Income Tax Withholding Allowance:

ed by the Ministry.

Land Allocation:

Refers to allocation of land to the investments with Investment Incentive Certificates, if any in that province in accordance with the rules and principles determined by the Ministry of Finance.

 

VAT Refund:  

VAT collected on the building & construction expenses made within the frame of strategic investments with a fixed investment amount of  500 million TL will be rebated .

According to this regional map:



http://www.economy.gov.tr/index.cfm?sayfa=44F11798-C3E9-A72F-1EA3A3E4901D989D

Rapid credit growth:

Bank lending to entrepreneurial businesses rise sharply.



The supply of private sector credit has surged in recent years, although much of this ended up fueling consumer imports. Bank lending to entrepreneurial businesses almost doubled between 2007 and 2011, but their share of overall business lending dipped. This suggests that small businesses find it harder than their larger counterparts to secure financing. That problem seems particularly acute for Turkey’s young entrepreneurs: 75% of our respondents under the age of 40 believe it is difficult to access funding in Turkey.

Other aspects of the funding ecosystem are still underdeveloped. According to a World Economic Forum assessment of venture capital conditions internationally, Turkish entrepreneurs find it more difficult than their peers in other G20 rapid-growth countries to win support for innovative but risky businesses. In addition, the total scale of Turkish M&A deals as a percentage of GDP, is just over half the G20 average.

The amount of investment capital raised through stock market flotation is still lower than average. However, more positively, Turkey’s respondents to the EY G20 Entrepreneurship Barometer 2013 survey were much more likely than others to report an improvement in initial public offering (IPO) activity over the past three years. They also pointed to strong improvements in the availability of finance from their customers and suppliers, which points to the continuing significance of non-bank sources of entrepreneurial businesses funding in the country.  

Domestic credit to the private sector stands at 37.7% of Turkish GDP compared to the G20 average of 99.0% (2008–10 average)



Geographical Location

Turkey is strategically located between key markets in Europe, the Middle East, Russia and Central Asia.


Economic growth

The economy has grown and evolved rapidly, and we see high potential for further growth across numerous industries.

Energy

Entrepreneurship interest outstrips activity. If that energy can be harnessed, then there is room for significant expansion

Tolerable levels of corruption

According to Corruption Perception Index 2013 prepared by the Transparency International, Turkey is ranked 53th out of 177. Turkey is in the 50 % percentile in Control of Corruption (2010) with the score of 0.009336191. However, the enforcement of the OECD Anti-bribery Convention is at low levels.

Tax & Regulations

Turkey’s outlook on tax and regulation is looking a lot more positive. There is still a long way to go, but local respondents to the survey were relatively optimistic about recent improvements to regulations, taxes and innovation incentives, with a majority seeing gains in these and other areas.

The survey demonstrates Turkey’s impressive progress in making it easier to start a business. According to The World Bank, it takes six days to start a business in the country. This is well below the average figure of 22 days for the rest of the G20 countries — although anecdotal evidence suggests that Turkish red tape can still be challenging.

Labor market rigidities are a significant problem. At 95 weeks’ wages, the cost of firing an employee is almost twice the G20 average. This encourages informal business activity, which in turn holds back Turkey’s entrepreneurial potential because it limits access to finance, innovation networks and skilled labor. This should be a clear area for the Government to focus its attention, especially in order to support ventures at an early stage.

Turkey has a relatively favorable direct tax structure, with a more competitive tax rate than the average in either the G20’s mature or rapid-growth countries. Indeed, the total tax rate has trended down over the past seven years — an encouraging sign of progress here. The indirect tax rate is more prohibitive, in part because it is easier for the state to capture indirect taxes than direct ones from the informal sector.

Competitive Disadvantages

High Levels of Corruption

Releasing its annual Corruption Perceptions Index (CPI) on Tuesday, Transparency International said corruption in poor countries has created a humanitarian disaster which threatens to derail the global fight against poverty.

The Berlin-based anti-corruption watchdog said donor countries should address the problem by carefully targeting aid.

The index ranks 180 countries according to perceived levels of public sector corruption. The CPI scores countries on a zero to 10 scale, with zero indicating high levels of corruption and 10, low levels. Turkey ranks 58th in global corruption index.

Source:

http://www.transparency.org/country#TUR

http://www.hurriyet.com.tr/english/domestic/9967221.asp

Entrepreneurship Culture

Turkey needs to encourage risk-taking and innovation  



It has not been that long since Turkey made the rapid transition from an agricultural to an industrial economy. Much of Turkish industry is labor-intensive, and the country has significant progress to make before entrepreneurship and innovation are firmly established.

Turkish respondents to the Entrepreneurship Barometer survey said that the portrayal of entrepreneurship in the media was unusually positive. Elsewhere, however, more needs to be done. In Turkey, 82% of entrepreneurs would welcome more government programs to educate, fund and raise the profile of entrepreneurship. Business failure is often perceived negatively, and being an entrepreneur is seen as a less valid career choice on average than in the G20’s rapid-growth countries. As such, improving tolerance of business failure is also seen as an important step to creating an entrepreneurial culture, according to 78% of entrepreneurs from Turkey.  

Turkey’s share of public spending devoted to R&D is around half the G20 average, although this is in line with other rapid-growth economies. The number of scientific and techincal journal articles may have risen sharply over the past 10 years, however, according to the OECD, Turkish R&D is poorly integrated with international research networks. A low 7% of Turkish patent applications involve international collaboration. If local ventures are going to move into more sophisticated or high-tech sectors, greater encouragement will be needed from both the private and public sectors on increased engagement.



The EY G20 Entrepreneurship Barometer 2013 introduces a model for scoring countries across the five pillars of entrepreneurship. The purpose of this model is to help identify areas of relative strength by country and where opportunities for improvement lie.

The model is composed of qualitative information (from our survey of more than 1,500 entrepreneurs) and quantitative data based upon entrepreneurial conditions across the G20 economies. For each pillar, excluding coordinated support, this information is weighted 50-50 between qualitative and quantitative inputs. For coordinated support, given a lack of quantitative indicators, this is based solely upon the survey responses.

The advantage of integrating both the survey results and quantitative data is the ability to provide an assessment of the current level and the trends in a G20 entrepreneurial ecosystem based upon local sentiment. To this end, official statistics (for example, on the average time taken to start a business or the tax burden) provide a baseline for each member country.

Survey information is an important complement to the baseline picture these statistics provide. Entrepreneurs’ feedback on the pace of improvement or deterioration in conditions in their country’s entrepreneurship ecosystem is incorporated in the model alongside the hard statistics.

Weaknesses

  • Innovation is hampered by weak protection of intellectual property rights.

  • Start-up support may be increasing, but it is difficult to satisfy the Government criteria attached to it.

  • The risk appetite of potential investors remains weak relative to more mature markets.

  • Despite sustained double-digit annual research and development (R&D) growth between 2006 and 2011, spending remains well behind other G20 leaders.

Threats

  • The education system isn’t delivering enough of the skills needed by an innovative and dynamic entrepreneurial business sector.

  • Geography is a benefit in terms of trading links, but Turkey borders significant areas of instability, particularly in Syria at present.

Signs of a sharp slowdown from recent high rates of economic growth point to a more challenging environment for entrepreneurs.

Turkey’s entrepreneurs still face many hurdles when it comes to growing their businesses. Turkey is making progress in improving several aspects of its entrepreneurial ecosystem. Red tape has been reduced, for example, making it easier to start a business. Bank lending is also on the rise, easing the funding shortages that have prevented many young businesses from growing. In several other areas, however, it is clear that Turkey lags behind the G20 average for entrepreneurship. Improved education, stronger innovation incentives and more flexible labor regulations would all help Turkey to boost the number of entrepreneurs who go on to create large and thriving enterprises.

Lack of Mettlesomeness

The education system unfortunately, does not equip its students to be innate problem solvers. Parents usually take care of the youth and provide a good support system financially. Therefore, students and children are not educated to be mettlesome in their own environment.

Brain Drain Causes Bigger Talent Crunch

A study undertaken by the Statistical Office of the European Communities, which involved interviews with 1564 households in Turkey, nevertheless seems to corroborate the view that migrants from Turkey are generally more educated than non-migrants (EUROSTAT, 2000). As well, a significant proportion (about 40 percent) of Turkish immigrants who migrated to the US in the 1990s hold a tertiary level degree, which is more than twice the tertiary school enrollment ratio in Turkey (Özden, 2005: 235). In fact, there are many indications of significant human capital transfer out of Turkey. Turkey is a middle income country that ranks 24th among countries sending skilled workers abroad according to UN sources. Official Ministry of Education figures indicate that, as of 27 February 2006, the number of students studying abroad at the undergraduate and graduate levels was around 21,400, with about a thousand of these students being sponsored by various governmental sources.

While this can put pressure on finding local talent, it also presents some unique opportunities:

  • The ability to expand your business network by working with Turks who have moved abroad

  • Hiring internationally-experienced talent, specifically Turks who have studied and worked abroad but returned to their Turkish homeland

SOURCES

http://www.erc.metu.edu.tr/menu/series07/0701.pdf

Uneven Education System

Over the past 88 years an invisible fault line has emerged between eastern and western regions of the country. This line marks vast developmental, demographic, and educational disparities. The four western regions of Turkey are the four most urban, densely populated, and socioeconomically developed regions of the country. By contrast, the three eastern regions of Turkey constitute the least socioeconomically developed regions of the country. In addition to being home to the country’s largest concentration of Kurds, eastern regions are largely rural, and their populations decrease annually due to westward migration to urban centers.Disparities between eastern and western regions of Turkey extend, by virtue of their interrelation, beyond development and demography to include issues of educational access, quality, and equity. 

According to Turkey’s Ministry of National Education (MNE), enrollment rates at the pre-primary and primary levels in the state school system are higher in western than eastern regions. Western regions enjoy a lower pupil-teacher ratio, and generally outperform eastern regions on international and national examinations. Lastly, gender and language factor more prominently in the educational experiences of students in eastern regions. Gender differences are greater in rural compared to urban areas in Turkey, and female illiteracy is highest in the eastern regions. Although Kurdish is widely spoken in homes across eastern regions of the country, Turkish is the national language and language of instruction in the state school system.The line separating eastern and western regions of Turkey is a concern for the EU, which fears the destabilizing effect and lack of cohesion caused by vast socioeconomic inequality within a member country. By implementing targeted educational policy in eastern regions, Turkey may reduce socioeconomic disparities and increase the likelihood of EU accession. 

SOURCES:

http://citation.allacademic.com/meta/p_mla_apa_research_citation/5/4/9/8/4/p549846_index.html?phpsessid=dtjcrdd17p30je3gbb6h15qkl7

English Literacy: Widely Spoken, but Low Proficiency

Turkey has ranked a dismal 43rd out of 44 countries in the English Proficiency Index (EPI), possibly hindering its economic competitiveness, according to a recent report by the Economic Policy Research Foundation of Turkey (TEPAV). The EPI, prepared by Education First (EF), ranks Turkey just above Kazakhstan in English proficiency. Despite being the 16th largest economy in the world and a powerful regional player, Turkey lags behind countries like Chile, Saudi Arabia and India when it comes to English, the report said. Better English skills would make Turkey’s workforce more adaptable to economic reform as well as their immediate neighborhood, according to TEPAV.

SOURCES

http://www.hurriyetdailynews.com/turkey-gets-f-grade-in-english.aspx?pageID=238&nID=9744&NewsCatID=344

Challenges

  • Lack of public data for validation purposes - Malaysia’s equivalent to the US Census Bureau is outdated and haphazardly done

  • Bureaucracy encountered in public offices, municipalities and at customs.

  • Unstable and uncertain state policies

  • Volatility in foreign exchange rates and inflation rates

  • Insufficient financial possibilities.

SOURCES

http://research.sabanciuniv.edu/326/2/IJEIM_5(3-4)_Paper_03-OK.pdf