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    Investmentinturkey 12802049772438-phpapp01 Investmentinturkey 12802049772438-phpapp01 Document Transcript

    • Automotive Industry – Upcoming Opportunity in TURKEY TURKEY IS ONE OF THE FASTEST GROWING ECONOMIES IN THE WORLDPROJECT International Marketing | Lalit Sharma ( Roll No 13)
    • Project International Marketing TABLE OF CONTENTSI. COUNTRY PROFILE: INTRODUCING TURKEY __________________________041.1 HISTORY, GEOGRAPHY, POPULATION __________________________________ 041.2 FUTURE PROSPECTS ___________________________________________________ 05II. PESTLE ANALYSIS _____________________________________________________062.1 Political _________________________________________________________________062.2 Economic _______________________________________________________________072.3 Social___________________________________________________________________102.4 Technological ____________________________________________________________102.5 Legal___________________________________________________________________122.6 Environmental____________________________________________________________13III. WHY INVEST IN TURKEY? _____________________________________________11  10 Reasons to Invest in Turkey ____________________________________________15IV. TURKEY-INDIA. ECONOMIC RELATIONS_______________________________17  India, Turkey negotiating free trade accord___________________________________18  India-Turkey Relation ___________________________________________________18  India, Turkey can have economic strategic partnership__________________________18  India, Turkey set up study group for FTA____________________________________18  Indian Oil Corp Ltd Turkey plan put on backburner____________________________19V. ENTERING INTO TURKEY MARKET ____________________________________19VI. SELECTING AUTOMATIVE SECTOR FOR INVESTMENT IN TURKEY____226.1 Global Sector_____________________________________________________________236.2 The Domestic Sector _______________________________________________________25VII. TARGET SEGMENT EXPORTING AUTOMOTIVE PARTS ________________29  Opportunities__________________________________________________________30Automotive Industry – Upcoming Opportunity in TURKEY Page 2
    • Project International Marketing  SWOT Analysis________________________________________________________34V1II. BEFORE INVESTING IN TURKEY_____________________________________36  General Business Environment____________________________________________36  Macroeconomics________________________________________________________37  Taxation______________________________________________________________37  Legal System___________________________________________________________38  Workforce_____________________________________________________________38ReferencesAbbreviationsAutomotive Industry – Upcoming Opportunity in TURKEY Page 3
    • Project International MarketingI. COUNTRY PROFILE: INTRODUCING TURKEY1.1 History, geography, populationTurkey, strategically located in the Eurasia region, is a dynamic country with a robust economyand a young population, often described as the “China of Europe.”It is a nation steeped in rich history and cultural life; a realm of sprawling cities and vast ruralareas; of coastal towns and tiny fishing communities. It is a mountainous country with mist-hidden plateaus, combined with enormous steppes and fertile river valleys.Sixty percent of the country is located at altitudes of 3,300 feet above sea level or higher. Locatedin eastern Turkey, Ağrı Dağı (Mount Ararat) at 16,976 feet is the nation’s highest peak and thebiblical resting grounds of Noah’s Ark.More than 99% of Turkey’s population is Muslim, but the nation is a secular state with a definitewestern perspective. Christian and Jewish communities also exist in the big cities like Istanbul,İzmir and Adana.Conservative Sunni Muslims make up the large majority of the country’s Muslim population. Butabout a sixth of Turkey’s population is Alevi, an Anatolian offshoot of the Shiite branch of Islam.Two continentsLocated on two continents -- Europe and Asia -- Turkey has always served as a bridge betweenthe Occident and Orient. The Silk Road, the traditional trade passage connecting Europe toChina, began in the ancient cities of what is now western Turkey.Eight countries border Turkey: Bulgaria in the northwest, Greece in the west, Georgia in thenortheast, Armenia, Azerbaijan and Iran in the east, Iraq and Syria in the southeast.Turkey is the third biggest nation in Europe in terms of territory after Russia and Kazakhstan---nearly twice the size of the state of California. Three percent of Turkey lies in Europe. Known asThrace, European Turkey forms the southeastern tip of the Balkans. Ninety-seven percent ofTurkey is located in Asia and is known as Anatolia. A bulging peninsula, shaped like a mare’shead, Anatolia is surrounded by the Black Sea, the Bosphorus, the Sea of Marmara, theDardanelles, the Aegean and the Mediterranean and has been home to many civilizations,including the Hittite, and the Carian, Lydian and Phrygian empires. Anatolia served as thegranary of the Roman and Byzantine Empires. Its loss to the Turks in the 11th century deprivedthe Byzantine Empire of its agricultural wealth and led to its eventual demise.Turkey is a key member of NATO and has the second biggest standing army in Europe afterRussia with more than one million men under arms. It is a member of the United Nations, theOrganization for Economic Cooperation and Development and other international bodies.Young peopleTurkey is a nation of young people. More than half of its population is under the age 25. Thecountry’s population has grown from 13.6 million in 1927 to over 72.561 million in 2009. By theend of 2020, Turkey is expected to have 81.650 million inhabitants. It already has the thirdAutomotive Industry – Upcoming Opportunity in TURKEY Page 4
    • Project International Marketinglargest population in Europe after Russia and Germany and is expected to surpass Germany in thenext several years.Atatürk’s reformsTurkey was proclaimed a republic in 1923, emerging from the ruins of the Ottoman Empirewhich ruled the Middle East, North Africa, the Balkans and parts of Eastern Europe for over 450years. The Ottoman Empire crumbled after its disastrous World War One defeat as an ally of theCentral Powers.From 1923 to 1938, Kemal Atatürk, the founder and first president of the Turkish Republic,carried out sweeping reforms that transformed the country from a backward, feudal state to aprogressive nation with a western outlook. The Sultanate was abolished. Atatürk replaced theSharia, or Islamic holy law, with civilian, trade and criminal codes adopted from Switzerland,Italy and Germany.In 1925, the fez and the turban, symbols of Islamic backwardness, were banned, replaced by theşapka, or western-style hat with a brim. Three years later, the Latin alphabet replaced the esotericOttoman script, allowing masses of illiterate Turks to learn to read and write.Atatürk established state economic enterprises, or state-owned industries, as a solution toTurkey’s economic underdevelopment. Enormous government-owned textile mills, mines andmineral processing plants, oil refineries and petrochemical complexes came into being. Statebanks with huge branch networks were also set up to help finance industrial growth andcommerce.Private SectorAtatürk’s successors encouraged the creation of private industry. Until the 1980s, authoritiesprotected local industry from outside competition by imposing severe restrictions on imports,including steep duties and customs barriers. The motor vehicle industry, synthetic fibers andyarns manufacturing, ready-wear and apparel, home textiles, pharmaceutical products, militaryaircraft and armored vehicles, household appliances, home electronics were some of the sectorsthat thrived as a result of the liberalization of the economy.In the past 22 years, the government has privatized many major industries that were originallyestablished during the early years of the Republic, including, steel plants, pulp and paper mills,oil refineries, clothing and textile plants, and cement factories to make the economy moreresponsive to market forces.1.2 Future ProspectsChallenges and ExpectationsTurkey is one of the fastest growing large economies of the world. It has had high growth ratesover the past four decades. But growth has come in spurts and stalls, resulting in high inflation,budgetary and current account deficits and political instability. From 1960 through 1997, thecountry had three military interventions and a post-modern military and civilian coup.Automotive Industry – Upcoming Opportunity in TURKEY Page 5
    • Project International MarketingInternational Monetary Fund-backed programs have helped Prime Minister Recep TayyipErdoğan’s government push down inflation to single digits from around 69.5% in 2001, revaluethe Turkish Lira against the dollar, introduce a new currency and achieve six years of stronggrowth and help draw record foreign investment and capital. Year-to-year inflation in March2009 stood at 7.89%, only to rise to 10.13% in February 2010.In the past three decades, Turkish leaders have adopted free market policies designed to integrateTurkey with the world economy. Under the late President Turgut Özal and his successors, thegovernment encouraged Turkish companies to do business abroad.In 2009, Turkey exported motor vehicles and automotive parts and components to more than 187countries and autonomous regions and 14 free zones on five continents.Exports of textiles and apparel, iron and steel, chemical products, electrical appliances, colortelevision sets, textiles and textile raw materials, nonferrous metals, mineral products, grains,pulses, oil seeds, cement, ceramic tiles and sanitary ware and jewelry, have also boomed.Imports, chiefly in crude oil, natural gas, boilers and machinery, iron and steel, motor vehicles,electrical machinery, plastics, valuable metals and stones, organic chemicals, pharmaceuticalproducts and optical equipment have also rocketed.Turkey’s foreign trade increased 34-fold in the past 29 years from a mere $7 billion in 1979 to$240.3 billion in 2009, according to the Turkish Statistical Institute. Exports have risen fromabout $2 billion in 1979 to $102.1 billion in 2009. Imports have ballooned from $5 billion to$140.7 billion in 2007.Many imported items previously banned in Turkey, such as computers, foreign-madeautomobiles and commercial vehicles, mobile phones, furniture, and food stuffs, are nowavailable on the market and compete with domestic products.Turkish political and economic influence has grown in the Balkans and in the Turkic Republicsof the former Soviet Caucasus and Central Asia since the breakup of the USSR and Yugoslavia.Turkish companies are among the biggest foreign investors in Romania, Bulgaria, Russia, Egypt,Ukraine, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Uzbekistan, TurkmenistanTunisia, Libya, Syria, Morocco and Iraq.During the past three decades, the nation completed a key part of its infrastructural development.New highways linking Europe with the Middle East, scores of new hydroelectric dams, powerplants, modern telecommunication networks were constructed. Phone lines were installed inevery village and hamlet in Anatolia.II. PESTLE ANALYSIS2.1 PoliticalPolitics of Turkey takes place in a framework of a secular parliamentary representativedemocratic republic, whereby the Prime Minister of Turkey is the head of government, and of apluriform multi-party system.Executive power is exercised by the government.Legislative poweris vested in both the government and the Grand National Assembly of Turkey. The Judiciary isAutomotive Industry – Upcoming Opportunity in TURKEY Page 6
    • Project International Marketingindependent of the executive and the legislature. Its current constitution was adopted onNovember 7, 1982 after a period of military rule, and enshrines the principle of secularism.2.2 EconomicAs of last year, almost all parts of the world economy, including Turkey, have fallen intorecession. Extensive fiscal and monetary policies, implemented all over the world but particularlyin major economies like the USA, China and Japan, have stopped the free fall of economies andincreased the hopes of recovery in the second half of the year and 2010. The message of majorcentral banks is that the historically low levels of interest rates will continue for an extendedperiod of time. In addition, the governments have given clear messages that the size of the fiscalstimulus packages will be increased if necessary. Not surprisingly, that has led the worldfinancial markets to price with a positive outlook, at least in the short term, causing significantgains in the stock exchange and bond markets since March 2009. The positive outlook seems tobe valid for the Turkish economy as well. As has been discussed so far, there are signs ofrecovery in the economyUS Dollar vs Turkish Lera ( 2 years exchange rate)Euro vs Turkish Lera ( 2 years exchange rate)Automotive Industry – Upcoming Opportunity in TURKEY Page 7
    • Project International MarketingAutomotive Industry – Upcoming Opportunity in TURKEY Page 8
    • Project International MarketingInternational TradeTurkey has borrowed $2 billion out of an expected $5.5 billion from international capital marketsthis year so far. Simsek said the country could, if need be, go without external financing for twoyears if market conditions did not improve.Turkeys economy started to recover from 2010Turkey’s inflation rate may be volatile in the first quarter of 2010Interest rate at record lowEmployment will pick up in 2010Inflation is accelerating temporaryTurkey shows signs of industrial recovery after gloomy yearAutomotive Industry – Upcoming Opportunity in TURKEY Page 9
    • Project International Marketing2.3 SocialThe liveliness of the Turkish culture is so rich that it cannot be fit into a single definition. It isinfluenced by the ancient history of Anatolia, the Mediterranean, the Middle East, the Caucasus,Eastern Europe, and certainly by the Aegean culture.Throughout history, Anatolia, like Istanbul, has hosted and produced many centers of culture andthe legacy of various civilizations attests to that fact. Today, this heritage also determines thecultural life of Turkey. The culture of tolerance for all religions and languages living together inpeace, spread from Istanbul (which was the capital of empires) to Anatolia. This tradition oftolerance is one of the most important inheritances that Turkey can share with the world.HospitalityIn addition to the existing social values of families living in a big city, the Turkish people haveretained some distinctive values of their own. One is an immense courtesy towards guests andvisitors and a tendency to lavish hospitality upon them, no matter how costly. Another is anabiding respect for their family and its senior members. Another Turkish value is a strong respectfor hard work and determination. And above all, there is a sense of humor and a love of life andmusic. One 19th century English ambassador noticed that the people of Turkey loved to sing anddance whenever they could. Many things have changed in Turkey since his time, but not that.2.4 TechnologicalThe Republic of Turkey has long been and continues to be an advocate of raising science andtechnology to new heights, and has recently been engaged in a significant science, technologyand innovation (STI) impetus. Such an advocacy is rooted in the advancement of a dynamic idealAutomotive Industry – Upcoming Opportunity in TURKEY Page 10
    • Project International Marketingbased on continuous renewal and modernization under the guidance of science, technology, andknowledge.The Turkish model is all the more significant given that the low levels of public R&D funds,industrial R&D, and demand for innovation alongside rising global competitive pressure onsectors with high exports were overcome by the instigation of an STI impetus. With similarconjectures still being valid in many developing countries, the Turkish model provides usefulinsight to address these challenges.This policy brief is organized into three main sections, namely long-term visions, strategies andtargets for STI driven growth, major instruments in the STI policy mix, and achievements. Withregards to the Turkish model, this paper emphasizes the conceptualization of the TurkishResearch Area (TARAL) in triggering a particular kind of mobilization, both in the sense ofresources and in guiding system actors towards socio-economic goals.Vision 2023: Science and Technology StrategiesIn an aspect of long-term visions and strategies for STI-driven, sustainable growth, ―Vision 2023:Science and Technology Strategies‖ sets forth the aim of creating an ever-more innovativesociety in 2023, which marks the 100th anniversary of the foundation of the Republic of Turkey.Together with three other projects that collected and evaluated data on the STI capacity of thecountry, Vision 2023 included a technology foresight project. Based on the Delphi method as asystemic, meta-instrument, the results produced over 90 technology activity fields of which themain domains deemed most vital to secure the attainment of an STI-driven, welfare society aregrouped under core socio-economic goals:Automotive Industry – Upcoming Opportunity in TURKEY Page 11
    • Project International MarketingEstablishment of the Turkish Research Area (TARAL)Launched in 2004, one of the subsequent triggers in the Turkish model is the conceptualization ofthe Turkish Research Area (TARAL). TARAL set into motion a mobilization with which theprivate and public sectors, together with NGOs, strategically focus and collaborate on R&D andinnovation. The TARAL objectives that are to be achieved are to (a) enhance the quality of life,(b) find innovative solutions to societal needs, (c) increase the competitiveness of the country,and (d) foster and diffuse S&T awareness in society. To make such a mobilization possible, theTARAL targets were determined as bolstering (i) the share of R&D expenditures in GrossDomestic Product (GDP), (ii) the demand for R&D, and (iii) the number of qualified R&Dpersonnel. A critical stimulus was the formulation of a new, additional public investment TARALbudget for the utilization of the RDI activities of TARAL actors. Hence, TARAL triggered aparticular kind of mobilization, both in the sense of resources and in guiding system actorstowards socio-economic goals, which continues to be instrumental in the Turkish Model.National Science and Technology Policies Implementation Plan for 2005-2010As the first plan aimed to springboard the country towards the long-term goals and expectationsthat are foreseen for the year 2023, the National Science and Technology PoliciesImplementation Plan (BTP-UP) was established for the five year strategy timeframe between theyears 2005-2010. Based on seven strategic objectives, BTP-UP (2005-2010) consists of amultitude of actions prescribed in line with the objectives, principles, performancemeasurements, and targets within the national STI system2.5 LegalIn early 1995, Turkeys legal system consisted of three types of courts: judicial, military, andadministrative. Each system includes courts of first instance and appellate courts. In addition, aAutomotive Industry – Upcoming Opportunity in TURKEY Page 12
    • Project International MarketingCourt of Jurisdictional Disputes rules on cases that cannot be classified readily as falling withinthe purview of one court system.The judicial courts form the largest part of the system; they handle most civil and criminal casesinvolving ordinary citizens. The two supreme courts within the judicial system are theConstitutional Court and the Court of Appeals.The Constitutional Court reviews the constitutionality of laws and decrees at the request of thepresident or of one-fifth of the members of the National Assembly. Its decisions on theconstitutionality of legislation and government decrees are final. The eleven members of theConstitutional Court are appointed by the president from among candidates nominated by lowercourts and the High Council of Judges and Public Prosecutors. Challenges to the constitutionalityof a law must be made within sixty days of its promulgation. Decisions of the ConstitutionalCourt require the votes of an absolute majority of all its members, with the exception of decisionsto annul a constitutional amendment, which require a two-thirds majority2.6 EnvironmentalWith the establishment of the Environment Ministry in 1991, Turkey began to make significantprogress addressing its most pressing environmental problems. The most dramatic improvementswere significant reductions of air pollution in Istanbul and Ankara. However, progress has beenslow on the remaining--and serious--environmental challenges facing Turkey.In 2003, the Ministry of Environment was merged with the Forestry Ministry. With its goal tojoin the EU, Turkey has made commendable progress in updating and modernizing itsenvironmental legislation. However, environmental concerns are not fully integrated into publicdecision-making and enforcement can be weak. Turkey faces a backlog of environmentalproblems, requiring enormous outlays for infrastructure. The most pressing needs are for watertreatment plants, wastewater treatment facilities, solid waste management, and conservation ofbiodiversity. The discovery of a number of chemical waste sites in 2006 has highlightedweakness in environmental law and oversight.After long years of silence, Turkeys becoming a signatory of the Kyoto Protocol was back on theagenda in 2007, and a focus of Prime Minister Erdogans speech at the UN General Assembly.Despite the positive approach, Turkey would still like to keep its reservation to get developingcountry treatment with regard to the emission levels set by the protocol.Turkeys economic emergence has brought with it fears of increased environmental degradation.As Turkeys economy experienced high levels of growth in the mid-1990s, the countrys boom inindustrial production resulted in higher levels of pollution and greater risks to the countrysenvironment. With domestic energy consumption on the rise, Turkey has been forced to importmore oil and gas, and the resultant increase in oil tanker traffic in the Black Sea and BosporusStraits has increased environmental threats there.Automotive Industry – Upcoming Opportunity in TURKEY Page 13
    • Project International MarketingWith Turkey now a formal candidate for membership in the European Union, Turkeysenvironmental record will come under heavy scrutiny. In 1983, Turkey promulgated the countrysoverarching "Environmental Law," and a national Ministry of Environment was created in 1991.Turkey is building an extensive network of hydroelectric energy sources in the southeast part ofthe country, and cleaner-burning natural gas is moving to replace coal in power generation.The importance of strong environmental protection measures, as well as the fragility of Turkeysenvironment, was driven home recently by catastrophe that struck the Tisza and Danube rivers insoutheast Europe. After a reservoir wall at a gold mine in Romania collapsed, cyanide-taintedwater was dumped into the Tisza River, and the toxic spill killed thousands of fish in Hungary asit flowed downstream into the Danube. Although the spill was supposed to be diluted by the timeit reached the Black Sea, and it was not expected to cause any damage there or in the MarmaraSea, Turkey took no chances, taking water samples in the Bosporus Straits to measure any effectsfrom the toxic spill.As Turkey steers itself towards meeting EU membership criteria, it should see increased energyefficiency. The growth in energy consumption should wane as state subsidies are eliminated andprices more accurately reflect costs. Yet, there will still be much room for improvement, andTurkeys vigilance in safeguarding its environment will be key to the continuance of its economicdevelopment.To the extent that natural gas replaces more carbon-intensive fuels, the countrys increased use ofnatural gas will further diversify the Turkish energy supply and contribute to the mitigation ofurban pollution and CO2 emissions. By setting differentiated taxes to promote the use of cleanerfuels (and, in particular, to promote the use of low-sulfur heavy fuel oil), Turkey can significantlystem the rising tide of carbon emissions. Continuing to educate the public about the benefits ofsaving energy, as well as involving large industries in energy efficiency programs, will lead tolong-term positive effects for Turkeys economy and environment.Finally, Turkeys State Planning Organization, together with the World Bank, is coordinating aproject called the "Turkish National Environmental Strategy and Action Plan" to implementactivities in Turkey related to Agenda 21. By establishing basic environmental standards andidentifying environmental investment priorities, Turkey can integrate sustainable policies into itsoverall economic development, thereby safeguarding its environment well into the futurIII. Why invest in Turkey?The Turkish economy has registered superb improvement in competitiveness in recent years andproven its potential as a magnet for international investors, world-renowned strategist ProfessorMichael Porter has said. Addressing agroup of businessmen and reporters on Saturday at aconference organized by İşTcell, a Turkcell brand directed at corporate customers, Porter,director of Harvard Business School’s Institute for Strategy and Competitiveness, said that ifTurkey were traded on the stock market, he would definitely make an equity investment in thecountry. During the first part of his speech, Porter described the major premises of creatingstrategies and determining and developing a competitive approach and the role of leaders in thecompetitiveness of a company. He also shared his views on possible strategies that may beAutomotive Industry – Upcoming Opportunity in TURKEY Page 14
    • Project International Marketingadopted during times of economic crisis. He devoted the second part of his speech to discussingTurkey’s economic strategies, including an in-depth analysis of the business world’s role in thesestrategies.This is perhaps the best time to consider investing in Turkey for business, because Turkey has avibrant economy which is all set to take off when Turkey joins the EU. Joining the EU will implythat the economy will take off in a big way with a lot of foreign investments coming in. Turkeyalso has a fast growing manufacturing industry which will enable the economy to grow faster,generating a greater demand for product consumption, which will in turn drive up profits forindustry, increasing its valuation.The Republic of Turkey’s movement toward membership in the European Union is creatingmomentum to adopt European business regulations and standards in Turkey, thereby ultimatelymaking it easier to sell and conduct business in this market. Similarly, reforms since 2001 havecreated a strong and stable economy that attracts foreign investment, which in turn will befollowed by desperately needed capital improvements and demand for new products and services.The Commercial Service in Turkey has identified a number of market opportunities for Indianfirms and continues to work with companies to either enter the Turkish market or expand marketshare.  10 Reasons to Invest in Turkey 1. SUCCESSFUL ECONOMY  Booming economy (USD 230 billion to USD 618 billion GDP from 2002 to 2009)  Sustainable economic growth (4.3 percent annual average real GDP increase for the last 7 years)  Promising economy with a bright future as it is expected to be the fastest growing economy among the OECD members during 2011-2017 with an annual average real GDP growth rate of 6.7 percent  16th largest economy in the world and 6th largest economy compared to the EU area in 2009  Institutionalized economy fueled by over USD 83 billion of FDI in the last 7 years and ranked as the 15th most attractive FDI destination for 2008-2010 (UNCTAD) 2. POPULATION  A population of 73 million people  Largest youth population compared with the EU  Median age 28.8  60 percent of the population under the age of 35  Young, dynamic, well-educated and multi-cultural population 3. QUALIFIED LABOR FORCE  Over 24.7 million young, well-educated and motivated professionals  Labor productivity with an annual average growth of 4.4 percent between 2002 and 2009  5th largest labor force compared with the EU  Consumer base and motivated work forceAutomotive Industry – Upcoming Opportunity in TURKEY Page 15
    • Project International Marketing  Approximately 450,000 graduates from circa 150 universities  Around 550,000 high school graduates, including one third from vocational and technical high schools 4. LIBERAL AND REFORMIST INVESTMENT CLIMATE  A dynamic and mature private sector with USD 102 billion worth of exports and an increase of 183 percent between 2002 and 2009  Highly competitive investment conditions  Strong industrial and service culture  Equal treatment for all investors  More than 23,000 companies with international capital  International arbitration  Guarantee of transfers 5. INFRASTRUCTURE  New and highly developed technological infrastructure in transportation, telecommunications and energy  Well-developed and low-cost sea transport facilities  Railway transport advantage to Central and Eastern Europe 6. CENTRALLY LOCATED  A natural bridge between both East-West and North-South axes, thus creating an efficient and cost effective outlet to major markets  Easy access to 1.5 billion customers in Europe, Eurasia, the Middle East and North Africa  Access to multiple markets worth USD 22 trillion of GDP 7. ENERGY CORRIDOR AND TERMINAL OF EUROPE  An important energy terminal and corridor in Europe connecting the East and West  As an energy transit country, Turkey currently has the capacity to transport 121 million tons of oil to the world markets per annum. Once the ongoing projects are completed, the annual transit capacity will increase to 221 million tons of oil and 43 billion m³ of natural gas. 8. LOW TAXES & INCENTIVES  Corporate Income Tax reduced from 30 percent to 20 percent  Individual Income Tax varies from 15 percent to 35 percent  Tax benefits and incentives in Technology Development Zones, Industrial Zones and Free Zones could include total or partial exemption from Corporate Income Tax, up to 80 percent grant on employer’s social security share, as well as land allocation.  New R&D and Innovation Support Law  Region and sector-based incentive system 9. CUSTOMS UNION WITH THE EU SINCE 1996  Customs Union with the EU since 1996, and Free Trade Agreements (FTA) with 16 countries  More FTAs underwayAutomotive Industry – Upcoming Opportunity in TURKEY Page 16
    • Project International Marketing  Accession negotiations with the EU since 2005 10. LARGE DOMESTIC MARKET  30 million internet users in 2009, up from 4 million in 2002  63 million GSM users in 2009, up from 23 million in 2002  44.4 million credit card users in 2009, up from 16 million in 2002  Over 85 million airline passengers in 2009, up from 33 million in 2002  27.3 million international tourist arrivals in 2009, up from 13 million in 2002IV. INDIA- TURKEY ECONOMIC RELATIONSIndia–Turkey relations are foreign relations between India and Turkey. Diplomatic relationsbetween India and Turkey was established in 1948. India has an embassy in Ankara and aconsulate–general in Istanbul. Turkey has an embassy in New Delhi. Both countries are fullmembers of the World Trade Organization (WTO). Both countries are regarded as trustworthyreferees in the Israeli-Palestinian conflict. Due to the latters key strategic support for Indiaschronological enemy, Pakistan, relations between the two countries have sometimes been coldlystrained. In recent years nevertheless, India and Turkey have decided to put aside differences, andseek closer political, economic, and military connections. India now characterizes the relationsbetween the two countries with warmth and cordiality. Also, the Indian real estate firm GMRGroup has decided to industrialize Ankara Airport. In 2007, trade between the two countries wasat $2,647 millionBilateral Trade and Investments2002 – 2003 – 2004 – 2005 – 2006 – 2007 – 2008The major items of India’s exports to Turkey include cotton yarn, synthetic yarn, organic dyes,organic chemicals, denim, steel (bars and rods), granite, antibiotics, carpets, unwrought zinc,sesame seed, TV CRTs, mobile handsets, clothing and apparel.Turkey’s exports to India includes poppy seed, auto components, marble, textile machinery,denim, carpets, cumin seeds, minerals (vermiculite, perlite and chlorites) and fittings and steelproducts.Indai – Turkey Exports & Imports (Department of Commerce)ExportsS.No. Country 2008-2009 %Share 2009-2010(Apr-Dec) %Share 1. TURKEY 637,029.19 0.7577 498,373.02 0.8317 Indias Total Export 84,075,505.87 59,924,452.16Automotive Industry – Upcoming Opportunity in TURKEY Page 17
    • Project International MarketingImportsS.No. Country 2008-2009 %Share 2009-2010(Apr-Dec) %Share1. TURKEY 664,242.24 0.4833 659,932.08 0.6909 Indias Total Export 137,443,555.45 95,516,587.45  India, Turkey negotiating free trade accord [Tue Feb 09 2010 20:28:34 GMT+0530] New Delhi, Feb 9 (IANS) Asking the private sector to take the lead in expanding economic ties, visiting Turkish President Abdullah Gul Tuesday said India and Turkey will try to complete a Free Trade Agreement (FTA), currently being negotiated. ―I do believe that FTA can be signed soon,‖ President Gul told assembled captains of industry at a joint business session with the apex chambers of commerce and industry.  India-Turkey Relation (Joint Declaration on Scientific and Technological Cooperation) Considering the importance of science and technology for the economic and social development of both the countries have desired to develop and expand cooperation in the field of science and technology in areas of common interest besides noting that together with economic and commercial relations, cooperation in science and technology offer great potential as a driver of bilateral relations. The joint statement has recognized that cooperation in science and technology will not only advance the state of science and technology to the benefit of both countries but also strengthen the bonds of friendship and understanding between people of both countries.  India, Turkey can have economic strategic partnership [Tue Sep 08 2009 18:28:13 GMT+0530 (India Standard Time)] Ankara (Turkey), Sep.8 (ANI): India and Turkey can have strategic partnership for making inroads into third countries for trading goods, projects and investments, said visiting Indian Commerce and Industry Minister Anand Sharma.  India, Turkey set up study group for FTA [Sat Nov 22 2008 00:24:10 GMT+0530 (India Standard Time)] New Delhi, Nov 21 (IANS) India and Turkey have set up a joint study group to work towards a bilateral free trade agreement.This was announced by Indian Prime MinisterAutomotive Industry – Upcoming Opportunity in TURKEY Page 18
    • Project International Marketing Manmohan Singh after talks with visiting Turkish Prime Minister Recep Tayyip Erdogan Friday evening at the stately Hyderabad House here.  Indian Oil Corp Ltd Turkey plan put on backburner [Friday, June 18, 2010 2:48] New Delhi: State-owned Indian Oil Corp Ltd has put its plans to set up an oil refinery in Turkey on the backburner, and is currently focusing on acquiring a producing hydrocarbon asset overseas along with Oil India Ltd.V. ENTERING INTO TURKEY MARKETTo enter the Turkish market, most INDIAN companies first opt to have a local representative orliaison office. As the business develops, companies open up subsidiaries. Companies rely onlocal experience and knowledge as to how business is done in this market. Knowing theregulatory and business framework is a difficult task without the support of a local businesspartner. The Commercial Service in Turkey has a number of programs and services available toassist the Indian. business community in establishing a presence in this market. In addition, theCommercial Service in Turkey employs experienced Commercial Specialists with industry sectorexpertise that can tailor your business approach to the right audience and advise and steer yourcompany through the often less than transparent bureaucratic procedures that are common inTurkey.Keeping in mind that Turkey is also the commercial hub of the region, companies should alsoconsider using Turkey or Turkish partners to access business opportunities throughout CentralAsia, the Caucasus, the Middle East and even Africa. Turkish partners know these neighboringmarkets well, and are ready to take risks to make sales.Using an Agent or DistributorUnless a Indian firms interests are large enough to warrant opening an office in the country, themost 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 complicatedbureaucratic procedures and the language barrier.An Indian firm should carefully investigate the reputation and possible conflicting interests ofany prospective representative or agent before signing contractual agreements. IndianCommercial Service Turkey can make background check on a selected company and prepare anInternational Company Profile (ICP) report, which can be a useful tool in the elimination of anagent or distributor candidate.Agency agreements under Turkish law are private contracts between two parties and theirstipulations vary according to mutual consent. There are no fixed commission rates. It isAutomotive Industry – Upcoming Opportunity in TURKEY Page 19
    • Project International Marketingrecommended that sole manufacturer representatives/distributors be appointed for the entirecountry, which may include other countries in the region. Agency Agreements can be for aperiod of a year to be renewed depending on the success of the agent. In cases where a largevolume of government business is expected, it is essential either to appoint an Ankara firm or anIstanbul firm with a branch office in the capital.Direct MarketingUnless a Indian firm has established an office in Turkey, direct marketing from the India withoutan agent or representative is not recommended. In fact, it is virtually impossible to surmountcomplicated bureaucratic requirements, language obstacles, and purchasing transactions without acompetent local representative/agent. Especially for those firms with sales potential large enoughto warrant it, a local affiliate is the best possible way of selling to this market without an agent,representative or distributor.Distribution and Sales ChannelsMarketing of most foreign products in Turkey is through foreign suppliers representatives ordistributors. Depending on the location of consumers/end-users, most distributors have a dealernetwork throughout the country or in areas where the product is most used—in the case of severalindustrial sectors; a dealer/repair network may be required. Commission representatives/agents,on the other hand, periodically visit their customers together with their foreign principals tomaintain strong personal contact, which is a very important marketing tool in Turkey.Selling Factors/TechniquesOnce an American firm appoints a manufacturers’ representative or agent, the agent or distributorexpects-and should receive-the principals full support with regard to literature, technicalinformation, advertisement and promotional materials. Possible private-sector importers shouldreceive catalogs and other literature clearly indicating the name and address of the localrepresentatives/distributors. A common and very effective support practice by Europeanprincipals is to invite the representative/agent to the principals country (India ) every year for anannual sales meeting. Both agents and, if possible, their principals, should periodically visitexisting and potential customers since the importance of personal contact in Turkey cannot beoveremphasized.Especially in larger Turkish cities, international trade promotional events, such as fairs,exhibitions and seminars, are common methods of sales promotion. These fairs are alsoopportunities for Indian companies to assess (and meet) existing competition, since all majorforeign and local suppliers participate in such events. The catalogs of the events serve as tradelists on specific product categories. Currently, there are about seventy international fair andexhibit organizers in Turkey.Automotive Industry – Upcoming Opportunity in TURKEY Page 20
    • Project International MarketingElectronic CommerceThe majority of E-commerce transactions in Turkey are in the field of Internet banking. Localindustry sources report that nearly 70 percent of all electronic commerce transactions are in on-line banking and financial services. The concept of Internet banking in Turkey is popular giventhe very high cost of maintain physical bank branches throughout the country. Apart fromincreasing customer service, the commercial banks realized that charging substantially lesstransaction cost for Internet banking than the traditional brick and mortar enterprise of the past,made the Internet banking more attractive to the consumers.Protecting Your Intellectual PropertySeveral general principles are important for effective management of intellectual property rightsin Turkey. First, it is important to have an overall strategy to protect IPR. Second, IPR isprotected differently in Turkey than in the India. Third, rights must be registered and enforced inTurkey, under local laws. Companies may wish to seek 6/30/2009 advice from local attorneys orIP consultants.It is vital that companies understand that intellectual property is primarily a private right and thatthe Indian government generally cannot enforce rights for private individuals in Turkey. It is theresponsibility of the rights holders to register, protect, and enforce their rights where relevant,retaining their own counsel and advisors. While the Indian Government is willing to assist, thereis little it can do if the rights holders have not taken these fundamental steps necessary to securingand enforcing their IPR in a timely fashion. Moreover, in many countries, rights holders whodelay enforcing their rights on a mistaken belief that the USG can provide a political resolution toa legal problem may find that their rights have been eroded or abrogated due to doctrines such asstatutes of limitations, laches, estoppel, or unreasonable delay in prosecuting a law suit. In noinstance should USG advice be seen as a substitute for the obligation of a rights holderto promptly pursue its case.It is always advisable to conduct due diligence on partners. Negotiate from the position of yourpartner and give your partner clear incentives to honor the contract. A good partner is animportant ally in protecting IP rights. 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 constantattention. Work with legal counsel familiar with Turkey laws to create a solid contract thatincludes non-compete clauses, and confidentiality/nondisclosure provisions. It is alsorecommended that small and medium-size companies understand the importance of workingtogether with trade associations and organizations to support efforts to protect IPR and stopcounterfeiting. There are a number of these organizations, both Turkey or India based. Theseinclude:- National Association of Manufacturers (NAM)- Board of Trade (BOT)- Export Promotion Board (EPB)- International Intellectual Property Alliance (IIPA)- International Trademark Association (INTA)- The Coalition Against Counterfeiting and PiracyAutomotive Industry – Upcoming Opportunity in TURKEY Page 21
    • Project International Marketing- International Anti-Counterfeiting Coalition (IACC)- Biotechnology Industry Organization (BIO)- Directorate General of Copyrights and Cinema at Ministry of Culture- Turkish Patent InstituteVI. SELECTING AUTOMATIVE SECTOR FOR INVESTMENT IN TURKEYSummaryThe automotive sector in Turkey began after 1950’s with very limited production under licencefrom Ford, Renault and Fiat, in a heavily protected domestic market. Overrecent decades it has been transformed in scale, due totwo main factors: the large size of the domestic marketwhere individuals were gainingincreasingpurchasing power as the Turkey is the second largest exporter of economydeveloped; and the vehicles to Europe after Japan, with total enormousexpansion of exports of US$24.7 billion in 2008. This internationaltrade especially constituted 19.4% of all exports from following theCustoms Union Turkey.10 In 2008, exports rose 10.1% to with the EUin 1996. These an estimated 906,230 units. Toyota, Fordfundamental Otosan, Tofas and Oyak-Renault all rank factorsshould underpin among Turkey’s top ten exporting continuinglong-term growth. companies. Imports fell by 6.7% to 335,104 units in 2008, as the domesticIn recent years the market was weak even before the last automotivesector has become quarter, with the result that the net thecountry’s largest balance of trade on automotive products export earner,with total exports of was a surplus of US$8.49bn. This was an US$24.7billion in 2008, which increase of 33% over 2007. constituted19.4% of total Turkish exportrevenue.Total production has increased with aCAGR of 22.1% from 2002 to 2008. Production in2008 was 1,147,110 units just over 80% of which were producedby the four main producers. There has been substantial foreign investment in thesector. Three out of those four main producers, Ford Otosan, Oyak-Renault, and Tofaş-Fiat, arepartnerships between Turkish and foreign carmakers. The other main producer,Toyota, is nowwholly Japanese-owned.Car ownership per capita has increased considerably in Turkey over the recent decades and it isexpected to increase further because the current level of 100 cars per 1,000 people is yet very lowcompared to France and Germany, where 1,000 people have 500 cars on average4Automotive Industry – Upcoming Opportunity in TURKEY Page 22
    • Project International MarketingIn 2010, demand patterns are likely to change for the Turkish automotive sector. Starting fromthe second half of 2010, domestic demand patterns are likely to start normalising and monthlysales are expected to be more stable. This would lead to more efficient production planning andtherefore to higher operating margins. Nevertheless, it is expected that the market for newpassenger cars will stagnate in 2010 full year. Once the effects of the global financial crisis startto weaken, it is expected that the Turkish automotive sector will pick up to average annualgrowth rates of 4.5-5% per year in 2011 and through to 2013.The Turkish automotive parts industry has shown considerable growth between 2002 and 2007and the first half of 2008, parallel to the increase in vehicle production. Exports of componentsand parts, about 70% of which go to Europe, doubled in value between 2005 and 2008, reachingUS$7 billion, or 32% of total automotive exports4. Also affected by the global financial crisis in2009, the automotive parts sector is expected to recover along with the automotive sector.Key factors which attract foreign capital inflows to Turkey include;  Easy access to neighbouring (regional) emerging markets,  Friendly investment legislation,  Liberal banking system,  Highly skilled human resources in production and management,  Complementary level of technology and industrial experience on OEM and OES level  Competitive labour cost with high productivity  Extensive R&D support for projects.Sector Overview6.1 GLOBAL SECTORIn 2008 global production of motor vehicles was 70.5 million, of which 52.6 million werepassenger cars and 17.9 million were commercial vehicles. Seventeen countries, includingTurkey, each produced more than one million vehicles in 2008. The industry had experiencedstrong growth over the past five years, mostly in passenger cars, although this came to an abruptend in the last quarter of 2008. Turkey is 15th in global automotive production and 5th in Europe Turkeys Global Position According to Automotive Production in 2008Automotive Industry – Upcoming Opportunity in TURKEY Page 23
    • Project International Marketing World Automotive OutlookGrowth in recent years has not been uniform worldwide. Production in the United States, whichhad been the dominant producer for more than 80 years, was stagnating or actually falling evenbefore the financial crisis: US production was 8.7 m in 2008, compared to 13.0 m in 1999. Thetraditional European producers Germany, France, Spain, the UK and Italy experienced slow ornegative growth over the past decade, while production increased in newer plants in the CentralEuropean countries. Japanese production in 2008 was11.6 m, the world leader, having finallyovertaken the US in 2006. But the most dramatic growth was in other Asian countries,Automotive Industry – Upcoming Opportunity in TURKEY Page 24
    • Project International Marketingparticularly China. Chinese production also overtook the US in 2008 at 9.3 m units, up from only1.8 m in 1999. Chinese production may even have overtaken Japan in 2009 Passenger Car Registrations, WorldEurope, as the market closest to Turkey and the destination of most Turkish exports, is the regionmost central to Turkish interests. Even before the financial crisis, growth in Europe had been farless robust than in the Far East. In 2008, total production in Europe was 18.4 million vehicles, a7% decline on 2007.6.2 THE DOMESTIC SECTORThe Turkish automotive sector is one of the economy’s locomotive sectors. It is highlyinternational: about 80% of Turkish vehicle production in 2008 was exported, mainly to Europe,while in the same year about70% of motor vehicle sales in Turkey were imported vehicles. Thisgrowth of both exports and imports hasoccurred as the major global manufacturers haveintegrated their Turkish plants into their global production planning: increasingly, specificmodels are produced in Turkey for global or regional sale, while other vehicles not produced hereare imported. Turkey’s inclusion in this type of global production planning is made possible bythe Customs Union with the EU, in force since 1996 Historical Timeline of the Development of Turkish Automotive IndustryAutomotive Industry – Upcoming Opportunity in TURKEY Page 25
    • Project International MarketingThere are currently 15 passenger and commercial vehicle manufacturers in the country, inaddition to 6 tractor producers. The total capacity of the OSD members (15 manufacturersincluding 2 tractor manufacturers) amounts to 1,562,405 vehicles as of 2009.8 Thesemanufacturers, together with the spare part producers, employ more than 230 thousand people,ranking in the top 10 globally.9 Importers usually sell through regional distributors, who sell onto consumers. The largest importers are Ford, GM (Opel),Volkswagen, Toyota, PSA Peugeot-Citroën and Hyundai. There were approximately 231,000 employees in the sector as of 2007.Turkey is the second largest exporter of vehicles to Europe after Japan, with total exports ofUS$24.7 billion in 2008. This constituted 19.4% of all exports from Turkey.10 In 2008, exportsrose 10.1% to an estimated 906,230 units. Toyota, Ford Otosan, Tofas and Oyak-Renault all rankamong Turkey’s top ten exporting companies. Imports fell by 6.7% to 335,104 units in 2008, asthe domestic market was weak even before the last quarter, with the result that the net balance oftrade on automotive products was a surplus of US$8.49bn. This was an increase of 33% over2007. Sales and Production Domestic Sales and ExportsAutomotive Industry – Upcoming Opportunity in TURKEY Page 26
    • Project International MarketingThe domestic market has shown long term growth and benefited from the strong economicconditions ruling from 2002 onwards. However, unlike many other developing economies, theTurkish economy showed some signs of cooling in 2007 and 2008 due to domestic factors evenbefore the financial crisis. Domestic sales of passenger cars and commercial vehicles both fell in2007, by 5.3% overall, and then by 17.0% in 2008. Clearly the main cause of the decline in 2008was the loss of confidence caused by the global financial crisis in the last quarter of the year.Although the origins of the crisis had nothing to do with Turkey and the local financial sector wasconsidered sound, with no financial rescue package needed, nevertheless there was a temporarysharp liquidity squeeze and a devaluation of the TL (partly reversed in 2009). As well as affectingconfidence, this reduced the availability of credit and raised both interest costs and the TL cost ofimported carsTurkish economy showed some signs of cooling in 2007 and 2008 due to domestic factors evenbefore the financial crisis. Domestic sales of passenger cars and commercial vehicles both fell in2007, by 5.3% overall, and then by 17.0% in 2008. Clearly the main cause of the decline in 2008was the loss of confidence caused by the global financial crisis in the last quarter of the year.Although the origins of the crisis had nothing to do with Turkey and the local financial sector wasconsidered sound, with no financial rescue package needed, nevertheless there was a temporarysharp liquidity squeeze and a devaluation of the TL (partly reversed in 2009). As well as affectingconfidence, this reduced the availability of credit and raised both interest costs and the TL costof imported cars.The Turkish government reacted to the crisis by announcing a temporary reduction in SpecialConsumption Tax (SCT), which together with VAT is one of the main taxes on vehicle purchase,from March – June 2009. This reduction applied equally to imported and domestically producedvehicles, and the reduction was biggest (from 36% to 18%) for smaller-engined vehicles up to1,600cc, which form the bulk of the market and domestic production. At the end of the threemonth period, the government continued with half of the tax reduction for a further three monthsto September. Thanks to this SCT reduction, domestic sales in the first nine months of 2009 wereactually slightly higher (3.4% growth) than in the same period of 2008.More seriously for producers, exports have been badly hit by the weakness in many Europeanmarkets. Exports for the 9 months to 30 September 2009 were 435,303 vehicles, down 44% onthe same period of 2008. The position had slightly improved by 30 November 2009, with 11Automotive Industry – Upcoming Opportunity in TURKEY Page 27
    • Project International Marketingmonth total exports of 560,824 vehicles, down 36%: passenger car exports were down 30%,commercial vehicle exports down 44% Sales and Production by Type Passenger Cars: Stock per 1,000 populationAutomotive Industry – Upcoming Opportunity in TURKEY Page 28
    • Project International MarketingThe growth of car sales and car ownership in Turkey has been achieved despite the verysubstantial tax burden which is imposed on new passenger car sales. This burden is the same fordomestically-produced cars and for those imported from the EU. The total tax burden isapproximately 60% on top of the pre-tax price for a car with engine of up to 1,600 cc. Above2000 cc; the tax burden rises to more than 100% of the pre-tax price. Thus the market is biasedtowards smaller-engined cars. In addition, the vehicle excise tax paid each six months issignificant and petrol prices are some of the highest in Europe. If these burdens were to ease infuture, the growth of car sales could be expected to accelerate.VII. TARGET SEGMENT EXPORTING AUTOMOTIVE PARTSThe Turkish automotive parts sector has exhibited strong growth between 2002 and 2007, as wellas in the first half of 2008. The sector comprises a mixture of major multinational producers andlocally-owned companies, which now produce a very wide range of injectionmoulded parts,tyres, batteries, spark plugs, carburettors, castings, fuel injection systems and transmission partsamong others, registered Exports of components and parts, doubled in value between 2005 and2008, reaching US$7 billion. This represents 32% of total automotive exports. Like the vehicleexports, about 70% of the component exports go to Europe.14 The automotive parts producershave been affected by the same global problems as the Turkish vehicle manufacturers, and areexpected to recover along with the automotive sector generally.The Turkish automotive parts/service equipment industry has expanded as Turkish automotiveproduction and imports have increased. In 2004, it was a record year for the industry inproduction, exports, and sales. Exports continued on the same trend in 2005 but the domesticmarket did not increase comparatively. 2007 was another record year for auto parts exportsincreasing by 40 percent compared to the year before. As a result of this trend, automotiveexports now rank first in total exports ahead of the traditional exports such as textiles and apparel.Today, Turkey produces spark plugs, carburetors, fuel injection systems, and several transmissionparts. This sector provides parts to for new vehicles as well as the existing Turkish automobileAutomotive Industry – Upcoming Opportunity in TURKEY Page 29
    • Project International Marketingfleet that exceeds 10 million units. Of the locally produced parts industry, 90 percent either areused in the production of vehicles that are exported or directly go to world part market. Supply Industry Performance TableThere are 21 automotive manufacturers in Turkey. The total capacity of the OSD members (15manufacturers including 2 tractor manufacturers) amounts to 1,562,405 vehicles in 2009.15 MostTurkish manufacturers have established joint ventures with foreign carmakers. The four mainproducers are Ford Otosan (US; mainly Transit commercial vehicles); Oyak-Renault (France;passenger cars only); Tofaş, a joint venture between Fiat (Italy) and the Koç Holdingconglomerate (mainly LCVs and also passenger cars); and Toyota (Japan; passenger cars). Thefour main manufacturers accounted for just over 80% of all vehicles manufactured in Turkey in2008 OPPORTUNITIES As Turkey continues to move towards European Union integration, equipment meeting stricter EU guidelines from emission control to automobile safety and standards tests, will equate to increased sales of advanced auto parts. Privatization of the vehicle inspection centers, again as a part of the EU integration, promises another opportunity to the Indian. service equipment suppliers, because these centers need to meet some guidelines in order to be authorized inspection centers. As a result of these more strict inspections of the vehicles, parts market is also estimated to bring new opportunities to the parts supplier, as well.Automotive Industry – Upcoming Opportunity in TURKEY Page 30
    • Project International Marketing Foreign Carmakers in Turkey Automotive Production by Manufacturer (2009, 10 months)Automotive Industry – Upcoming Opportunity in TURKEY Page 31
    • Project International Marketing Automotive Production & Capacity (2009, 10 months)Sector OutlookThe short term outlook for the sector in Turkey depends on exports, and therefore on the strengthof demand in Europe. Many observers expect that recovery will continue in 2010, but that it willbe slow. Domestically, the incentives offered in March-September 2009 may have broughtAutomotive Industry – Upcoming Opportunity in TURKEY Page 32
    • Project International Marketingforward sales, but from the second half of 2010 domestic demand patterns are likely to resumetheir former stability and then growth. Monthly sales should become more stable in 2010,enabling more efficient and profitable production planning. Once the effects of the globalfinancial crisis start to weaken, it is expected that the Turkish automotive sector will pick up toaverage annual growth rates of 4.5-5% a year in 2011 and through to 2013 20 thanks to:High export volume, enabled by Turkey’s status as an alternative supply centre, where labourcosts are highly competitive and modern plants are located advantageously with respect to exportmarkets such as Europe and the Middle East,The untapped potential in the domestic market, evidenced by the fact that 75% of households inTurkey do not own a car.Incentives provided to investors in various forms including tax exemptions, contribution of thesocial security premium employer’s share, land allocation, R&D support, training andrecruitmentsubsidies and others,Free Trade Zones, designed to encourage trade to and from Turkey, boosting the automotivesector, New Vehicle Regist rat ion Project ions E: estimated, F: forecasted; Source: Economist Intelligence UnitAutomotive Industry – Upcoming Opportunity in TURKEY Page 33
    • Project International Marketing  SWOT Analysis & OpportunitiesThe Government facilitated and encouraged the import of technology and foreign capitalinvestments. At the same time, the domestic market has grown, as the conquest of previouslyhigh inflation and government deficits brought stability and more rapid GDP growth. As a result,international investors such as Toyota, Honda and Hyundai have entered the Turkish market andthe previous entrants Ford, Fiat and Renault have extended their investments. The parts suppliershave also made major investments. The leading foreign automotive parts manufacturers haveestablished a presence in the country through joint ventures, which dominate production andexports. Automotive parts giants such as Bosch, Autoliv, Pirelli, ZF, Valeo, Denso and manyothers are present in the Turkish market.There has also been substantial locally-owned investment by parts manufacturers.The effects have been that:Quality of production improved dramatically, especially through the establishment of qualitymanagement systems; The industry has adapted to EU regulations and has established an efficientand exemplary cooperation with public institutions in the transformation of EU regulations tonational regulations and their implementation.Automotive Industry – Upcoming Opportunity in TURKEY Page 34
    • Project International MarketingExports have risen sharply, and Turkish production has been integrated into manufacturers’global planning. The export potential of the automotive parts sector, coupled with the presence ofmajor international automotive manufacturers, has attracted an increasing number of foreigninvestors.The Turkish automotive market, comprised of Key factors which attract foreignpassenger cars, commercial vehicles, tractors, and capital inflows to Turkeyautomotive components sub-segments, offers foreign mainly include; the market size,investors attractive investment opportunities, from consumer composition, friendlyautomotive and components manufacturing investment legislation and liberal(particularly viable for aftermarket and 1st tier banking system together with othersuppliers) to joint production development for global attractiveness arising from highlycar models, R&D and testing houses, technology skilled human resources intransfer, as well as in electronics – diagnostics, production and management, thesafety (air bags, side protection systems), lighting unsaturated domestic market with(HID - Xenon), security (theft protection devices), high potential, easy access tocomfort (smart seating), audio / navigation and larger neighbouring (regional) emergingand sophisticated moulds. markets, and low labour cost..Indian Manufaturer in Turkey Market Indian Tractor Industry Leader Tafe Makes a Greenfield Investment in Manisa Industrial Zone Istanbul, October 13, 2008 - The Investment Support and Promotion Agency of Turkey(ISPAT) and Indias leading tractor manufacturer Tractors and Farm Equipment Limited (TAFE),today jointly announced TAFEs decision to invest in a tractor assembly/manufacturing facility inManisa Organized Industrial Zone, with plans to manufacture 15,000 tractors per year. Whileinvestment plans are being finalized, in order to launch a full range of tractors (from 45 to 80 HP)for the Turkish market at the earliest, production will start initially with the support of aggregatesfrom TAFEs plants in India, while production is expected to start in the first quarter of 2009.TAFE, an Indian JV based at Chennai, is the worlds second largest manufacturer of tractors inthe sub 100 HP range with an annual production and sales of 80,000 units in India, South Asia,Africa and North America. With a history of designing, manufacturing and marketing tractorsaround fifty years, and nearly a million satisfied tractor customers, TAFE has vast experience inmanufacturing tractors to suit every possible type of agro-climatic condition and operation inthe small and medium HP range.TAFE is the first Indian manufacturer to set up a manufacturing base in Turkey. The companyhas chosen to locate its new plant in Manisa, which in addition to its strategic location, hasAutomotive Industry – Upcoming Opportunity in TURKEY Page 35
    • Project International Marketingexcellent infrastructure. Commenting on the issue, Mallika Srinivasan, TAFEs Director and CEOsaid, ―The tractor market in Turkey is of great significance to us as its composition is well withinour experience and manufacturing range. Turkey is an investor friendly country and we havebeen welcomed and assisted in our investment proposals by the authorities at the ManisaOrganized Industrial Zone as well as directly by the Prime Ministers office at Ankara. WithISPATs support, we are confident in beginning manufacturing operations by the first quarter of2009‖. Manisa is well located in terms of proximity to the well-developed automotive componentmanufacturing base in Turkey and TAFE is expected to leverage this for its local as well asglobal requirements. It is worth noting that over 2,000 TAFE tractors are already in operation inTurkey and that negotiations for sales and distribution of tractors from the new plant are inprogress with a world leader in agricultural equipment, while final arrangements are expected tobe announced shortly.India’s Wipro signs strategic cooperation deal with AS/Nexia TurkeyTurkiye - India’s IT solutions provider Wipro, has signed a strategic cooperation deal withAS/Nexia Turkey, an auditing and consultancy firm. The cooperation between Turkish andIndian companies first came about during Turkish President Abdullah Gul’s official visit to India,where Gul invited the Indian company to invest in Turkey. Wipro and AS/Nexia Turkey willcooperate in providing consultancy services in Turkey’s energy sector. Having a market value ofaround USD 30 billion, Wipro is one of the largest IT companies in India, with stocks traded inthe Indian and New York stock markets.V1II BEFORE INVESTING IN TURKEY  General Business Environment DUE TO THE LACKS OF THE CERTAİNTY AND PREDİCTABİLİTY OF THE LAW AND TRANSPARENCY CATCHİNG İNVESTORS DEPENDS ON PROVİDİNG HİGH YİELD AND TAXİNCENTİVES. SELECTIVE APPLICATION OF THE LAW. POOR BUSINESS ETHICS. THE CONCEPT OF A WRITTEN "CONTRACT" IS NOT MAINSTREAMED. TURKEY WILL ALWAYS HAVE GREAT POTENTIAL. I WONDER IF THEY WILL EVER REACH THAT POTENTIAL. THE BUSINESS ENVIRONMENT IS UNPREDICTABLE DUE TO HEAVY GOVERNMENT INVOLVEMENT IN EVERY ASPECT OF THE BUSINESS LIFE. PERMITS REQUIRED FOR MANY BUSINESS DEVELOPMENT INITIATIVES ARE HINDERED BY UNCERTAINTIES IN THE OFFICIAL PROCEDURES, SUB-STANDARD GOVERNMENT INSTUTION CAPACITIES, CONSTANTLY REPEALED REGULATIONS/LAWS, TECHNICAL INCOMPETENCE OF GOVERNMENTAL WORKERS, AND INAPTNESS OF COURTS IN TECHNICAL MATTERS, LACK OF OBJECTIVE AND STANDARDIZED APPROACHES/PROCEDURES. MOST OF THE DAY-TO-DAY WORK INVOLVING GOVERNMENT (WHETHER LOCAL OR CENTRAL) REQUIRES KNOWING THE "RIGHT" PEOPLE IN GOVERNMENTAL ORGANIZATIONS. THE FACT THAT INTELLECTUAL PROPERTY IS NOT ADOPTED PREVENTS EVERY KIND OF INTELLECTUAL CAPITAL INVESTMENTAutomotive Industry – Upcoming Opportunity in TURKEY Page 36
    • Project International Marketing PRIMAL INVESTMENT COSTS AND RISKS ARE HIGH. THAT GENERATES QUESTION MARKS ABOUT THE RETURN OF THE INVESTMENT AND AGGRAVATES CONVINCING THE INTERNATIONAL CENTER  Macroeconomics TAXES ARE TOO HIGH. PUBLIC ENTITIES WITH STRONG MACROECONOMIC FUNCTION SUCH AS SGK AND TEIAS DELAYING PAYMENTS. CONTINUING POPULIST IMPLEMENTATIONS AT MUNICIPAL LEVELS DRAWING ON RESOURCES. TRADE DEFICIT IS UNSUSTAINABLE.LINKAGES TO NEIGHBORING EMERGING MARKETS WILL BRING THE BIGGESTS GAINS DETERMINED AND DISCIPLINED APPLICATION OF FISCAL POLICY IN COORDINATION WITH THE MONETARY POLICY WILL PAY OFF IN THE LONGER TERM. IT SEEMS THAT THE FISCAL SIDE IS QUITE WEAK AND IS LACKING AN ANCHOR. STILL RISKS TO INFLATION/INTEREST RATES FROM GOVERNMENT SPENDING POLICIES AND LACK OF IMF PROGRAM. EXTERNAL DEMAND NARROWNESS AND THE DİFFİCULTİES LİVED BY EXPORTERS ARE THE MOST PRİMAL ECONOMİC PROBLEMS. THE STRONGEST SİDE İS THE FACT THAT BANKİNG SECTOR İS AFFECTED MİNİMUM FROM THE GLOBAL CRİSİS.  Taxation TAX SYSTEM: THERE ARE HIDDEN TAXES. THERE IS ALWAYS AN ADDITIONAL FEE ETC WHICH INCREASES THE OVERALL TAX BURDEN AND COMPLICATES THE BUSINESS TRANSACTIONS. FOR EXAMPLE, STAMP TAX LEVIED ON BUSINESS CONTRACTS. THE INDIRECT TAXES (SALES AND OTHER) SUCH AS THOSE APPLIED TO TELECOMMUNICATION BILLS, ETC. ARE ALSO RATHER HIGH. FURTHER TO GOVERNMENTAL AGENCIES TAXES THERE ARE SEMI-OFFICIAL INSTITUTIONS THAT CHARGE FEES THAT ARE MANDATORY BY LAW. FOR EXAMPLE, TRADE CHAMBERS CHARGE MANDATORY ANNUAL FEES AS PERCENTAGE OF COMPANY REVENUE. SIMILARLY ENGINEERING CHAMBERS ALSO CHARGE CERTAIN MANDATORY AMOUNTS. THE PROBLEM IS NOT THE FEES, BUT WE DO "NOT" GET IN RETURN AS A SERVICE. THEN THERE IS MANDATORY NOTARY FEES WHICH ARE VERY HIGH INTERNATIONAL INVESTORS AND CORPORATIONS ARE PENALIZED BY HIGHER RATES OF TAX THAT ARE NOT COMPETITIVE WITH LOWER TAX COUNTRIES LIKE SINGAPORE OR IRELAND. THE REDUCTION IN CORPORATE TAXATION WAS A GOOD START, BUT THE ORGANIZED, CORPORATE SECTOR IS SUBSIDIZING THE INFORMAL SECTOR -- EFFORTS TO ADDRESS TAX EVASION IN THE INFORMAL SECTOR IS WELCOMED, BUT WE SHOULD ALSO BE ASKING IF TAXING PRODUCTION, CAPITAL AND INVESTMENT IS BETTER THAN TAXING CONSUMPTION, IN TERMS OF ENCOURAGING ECONOMIC GROWTH TURKEY İS NOT A DEVELOPED COUNTRY AND DO NOT HAVE A STRUCTURE WHİCH CAN TOLERATE HEAVY TAXES. SİNCE TAXES ARE NOT COLLECTED FROM THE REVENUES GENERALLY, CONSUMPTİON TAXES ARE VERY HİGH. BESİDES, İNSTİTUTİONS WHO PAYS THE TAXES VİA REVENUES AND PEOPLE PAY TAXES TWİCEAutomotive Industry – Upcoming Opportunity in TURKEY Page 37
    • Project International Marketing TAX AND EMPLOYMENT ARE İN DİRECT PROPORTİON. UNFORTUNATELY, PRESENT TAX RATES CAUSES UNFAİR COMPETİTİON AND TAX EVASİON. INCOME TAXES ARE AT PAR WITH MATURE MARKETS; HOWEVER, STATE BENEFITS ARE VERY LOW COMPARED TO THE TAXES PAID.  Legal System IT IS BETTER TO SETTLE DISPUTES OUTSIDE OF THE COURTS IF POSSIBLE. THE COURTS ARE TOO SLOW TO REACT. IN MATTERS OF TECHNICAL ISSUES, THE COURTS ARE INCOMPETENT. CERTAIN COURTS ARE BIASED IN THEIR DECISIONS CULTURE OF TRADEMARK PROTECTION HAS TO BE STRENGTHEN DELAYS IN THE JURIDICAL PROCESSES AND DISCRIMINATION OF LOCAL VS. FOREIGN IN MINDS ARE IMPORTANT PROBLEMS IMPLEMENTATİONS ABOUT THE COPRİGHTS AND PATENTS SHOULD BE ELABORATED İN AN İNTERNATİONAL LEVEL CASES TAKES A LONG TİME. THERE ARE NO EXPERT JUDGES ABOUT THE İSSUES AND GENERALLY THE SYSTEM CONDUCTS İNCH ALONG. RESULTİNG OF THE CASES TAKES YEARS. THAT ENFORCES THE TURKEYS COMPETİTİON ADVANTAGE  Workforce DO NOT FİND THE DİSPLACEMENT DECİSİON OF THE COURT FAİR. WORKERS ARE PROTECTED MORE THAN ADEQUATE AND EMPLOYERS ARE MİSTREATED. FİSCAL BURDENS ON THE EMPLOYMENT İS STİLL VERY HEAVY. LABOUR COURTS ALWAYS DECİDE İN FAVOUR OF THE WORKERS THE LAW AND COURTS ARE BIASED IN FAVOR OF DISMISSED EMPLOYEES, SO INVESTORS AND EMPLOYERS ARE HESISTANT TO HIRE, BECAUSE DISMISSALS FOR POOR PERFORMANCE OR UNETHICAL BEHAVIOR CAN STILL END UP COSTING COMPANIES A LOT OF MONEY WHEN COURTS SIDE WITH DISMISSED EMPLOYEES, WHICH IS THE RESULT IN THE MAJORITY OF CASES.Automotive Industry – Upcoming Opportunity in TURKEY Page 38
    • Project International MarketingResources And Refrences :-Automotive Industry – Upcoming Opportunity in TURKEY Page 39
    • Project International Marketing Other Sources :-www.empadvisers.comhttp://www.buyusa.gov/turkey/en/doing_business_in_turkey.htmlhttp://www.allaboutturkey.com/info.htmhttp://www.invest.gov.trhttp://commerce.nic.inhttp://www.usemb-ankara.org.trdAutomotive Industry – Upcoming Opportunity in TURKEY Page 40
    • Project International MarketingAbbreviationsACEA The European Automobile Manufacturers AssociationCAGR Compound Annual Growth RateEMEA Europe, Middle-East and AfricaERP Enterprise Resource PlanningEU European UnionEUR EuroDTM Undersecretariat of the Prime Ministry for Foreign TradeFDI Foreign Direct InvestmentGDP Gross Domestic ProductISE Istanbul Stock ExchangeISPAT Republic of Turkey Prime Ministry Investment Support and Promotion AgencyJV Joint VentureOEM Other Equipment ManufacturerOES Other Equipment SupplierOSD Automotive Manufacturers AssociationTSKB Industrial Development Bank of TurkeyUK United KingdomSCT Special Consumption TaxUS United StatesUS$ US DollarsAutomotive Industry – Upcoming Opportunity in TURKEY Page 41