Eduardo	
  Villarreal	
  Holguera	
  
03320546	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  ...
  2	
  
I. TABLE	
  OF	
  CONTENTS	
  
III.	
   PURPOSE	
  OF	
  THE	
  ANALYSIS	
  .........................................
  3	
  
III. PURPOSE	
  OF	
  THE	
  ANALYSIS	
  
The	
   purpose	
   of	
   this	
   project	
   is	
   to	
   analyze	
 ...
  4	
  
Economic	
  Risk	
  Analysis	
  Variables	
  =	
  32	
  points	
  
• Falling	
  GDP	
  per	
  person	
  	
  (8	
  ...
  5	
  
	
   A	
   merger	
   is	
   one	
   of	
   the	
  
riskiest	
   ways	
   to	
   enter	
   a	
   market	
  
but,	
...
  6	
  
beer	
  and	
  all	
  of	
  its	
  other	
  products)	
  raise	
  the	
  barriers	
  to	
  entry	
  even	
  for	
 ...
  7	
  
Cervecería	
  Cuauhtémoc	
  Moctezuma	
  in	
  2010	
  and	
  Anheuser-­‐Busch	
  has	
  control	
  over	
  50%	
 ...
  8	
  
Extra	
  brand	
  is	
  “targeted	
  to	
  people	
  who	
  are	
  looking	
  to	
  relax	
  responsibly”.	
  (Gru...
  9	
  
company's	
   total	
   revenues	
   and	
   generated	
   revenues	
   close	
   to	
   TRY	
   1,626.335million	...
  10	
  
the	
  world,	
  providing	
  access	
  within	
  a	
  four-­‐hour	
  flight	
  to	
  multiple	
  markets	
  that...
  11	
  
	
  
Turkey	
  has	
  experienced	
  a	
  rapid	
  urbanization	
  that	
  has	
  resulted	
  in	
  a	
  high	
  ...
  12	
  
	
  
D. Government	
  (extract	
  from	
  the	
  U.S.	
  Department	
  of	
  State	
  website)	
  
The	
   1982	
...
  13	
  
E. Economy	
   	
  
“Ever	
  since	
  the	
  late	
  president,	
  Turgut	
  Ozal,	
  began	
  lowering	
  trade	...
  14	
  
	
   Probably	
   the	
   biggest	
   driver	
   of	
   Turkey’s	
  
economic	
   growth	
   has	
   been	
   the...
  15	
  
5. EU	
  Accession	
  
“On 14 April 1987, Turkey applied for membership of the European
Communities. In the Opini...
  16	
  
VIII. COUNTRY	
  RISK	
  ANALYSIS	
   	
  
A. The	
  Economist	
  1986	
  Country	
  Risk	
  Model	
  
1. Politic...
  17	
  
2. Economic	
  Risk	
  
	
  
VARIABLE WEIGHT
SCORE
ASSIGNED ANALYSIS
FallingGDP
perperson
8 2
Considering the mos...
  18	
  
3. Social	
  Risk	
  
	
  
VARIABLE WEIGHT
SCORE
ASSIGNED
ANALYSIS
Urbanization
3 2
Considering the most favorabl...
  19	
  
IX. RECOMMENDATION	
  
After	
  analyzing	
  the	
  Turkish	
  environment	
  and	
  performing	
  a	
  country	
...
  20	
  
X. BIBLIOGRAPHY	
  
ADH-­‐Geneve.	
  "Turkey:	
  Current	
  Conflicts."	
  23	
  July	
  2012.	
  Rule	
  of	
  L...
  21	
  
Matthews,	
  Owen.	
  "Turkey's	
  Headlines	
  Military."	
  30	
  July	
  2011.	
  The	
  Daily	
  Beast.	
  2	...
  22	
  
Turkey	
  Business	
  Forecast	
  Report.	
  "Chapter	
  5:	
  Key	
  Sectors."	
  Turkey	
  Business	
  Forecast...
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Grupo Modelo's Merger with Anadolu Efes: An Investment Project Risk Analysis

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Grupo Modelo's Merger with Anadolu Efes: An Investment Project Risk Analysis

  1. 1. Eduardo  Villarreal  Holguera   03320546                                                                                                                                                                                                                                                                                                                                                                       GBE  790          -­‐  Global  Business  Experience  in  Turkey                                                                                                                                                                                                                                             February  10,  2013                                                                                                                                                                                                                                                                                                               B e n t l e y   U n i v e r s i t y ,   M c C a l l u m   G r a d u a t e   S c h o o l   o f   B u s i n e s s           Grupo  Modelo’s  Merger  with   Anadolu  Efes:   An  Investment  Project  Risk  Analysis  
  2. 2.   2   I. TABLE  OF  CONTENTS   III.   PURPOSE  OF  THE  ANALYSIS  ............................................................................................  3   A.   The  Economist  1986  Country  Risk  Model  ..............................................................................................................  3   1.   Reasoning  for  the  Use  of  this  Model  ...........................................................................................................................  3   2.   Explanation  of  the  Methodology  .................................................................................................................................  3   IV.   EXPLANATION  OF  THE  INVESTMENT  PROJECT  .................................................................  4   V.   ANALYSIS  OF  THE  BEER  MARKET  ......................................................................................  5   A.   The  Turkish  Beer  Market  ..............................................................................................................................................  5   B.   The  Mexican  Beer  Market  .............................................................................................................................................  6   VI.   THE  COMPANIES  INVOLVED  ............................................................................................  7   A.   Grupo  Modelo  .....................................................................................................................................................................  7   1.   Acquisition  negotiations  with  Anheuser-­‐Busch  InBev  .......................................................................................  8   B.   Anadolu-­‐Efes  .......................................................................................................................................................................  8   VII.   THE  TURKISH  ENVIRONMENT  ........................................................................................  9   A.   Geography  ............................................................................................................................................................................  9   B.   Background  &  History  (extract  from  the  CIA’s  World  Factbook)  .............................................................  10   C.   Demographics  and  Social  Factors  ...........................................................................................................................  10   D.   Government  (extract  from  the  U.S.  Department  of  State  website)  ..........................................................  12   E.   Economy  ............................................................................................................................................................................  13   1.   Gross  Domestic  Product  ...............................................................................................................................................  13   2.   Unemployment  .................................................................................................................................................................  14   3.   Inflation  ..............................................................................................................................................................................  14   4.   International  Trade  .......................................................................................................................................................  14   5.   EU  Accession  .....................................................................................................................................................................  15   F.   Competitiveness  .............................................................................................................................................................  15   G.   Tourism  ..............................................................................................................................................................................  15   VIII.   COUNTRY  RISK  ANALYSIS  ............................................................................................  16   A.   The  Economist  1986  Country  Risk  Model  ...........................................................................................................  16   1.   Political  Risk  .....................................................................................................................................................................  16   2.   Economic  Risk  ..................................................................................................................................................................  17   3.   Social  Risk  ..........................................................................................................................................................................  18   IX.   RECOMMENDATION  .....................................................................................................  19   X.   BIBLIOGRAPHY  ...............................................................................................................  20        
  3. 3.   3   III. PURPOSE  OF  THE  ANALYSIS   The   purpose   of   this   project   is   to   analyze   the   risks   that   Grupo   Modelo   would   encounter  if  the  company  decided  to  invest  in  the  expansion  of  Corona  Extra,  Mexico’s  top   selling  brand  and  one  of  the  five  most  valuable  in  the  world,  into  the  Turkish  market.     The  investment  project  analysis  performed  in  this  paper  will  include  first-­‐hand  and   second-­‐hand  data  and  information,  as  well  as  the  use  of  an  adaption  of  The  Economist  1986   Model  to  assemble  a  country  risk  analysis.   A. The  Economist  1986  Country  Risk  Model   1. Reasoning  for  the  Use  of  this  Model   Even  though  the  Economist’s  1986  Country  Risk  Model  is  outdated  and  no  longer  in   use,   it   provides   a   simple,   feasible   way   to   grade   a   country’s   investment   risk.   This   is   a   complete  country  risk  model,  with  an  understandable  structure,  a  linear  grading  and  the   use  of  appealing  variables.     2. Explanation  of  the  Methodology       The  model  works  by  grading  a  country’s  risk  on  a  100-­‐point  scale,  divided  in  three   types   of   risk:   Political,   Economic   and   Social.   In   The   Economist’s   Country   Risk   Model,   a   country’s  risk  grade  is  distributed  as  follows:  50%  to  Political  risk,  33%  to  Economic  Risk   and  17%  to  Social  risk,  with  a  pool  of  variables  considered  in  each  type  of  risk.    For  the   purpose  of  this  analysis  however,  the  weight  assigned  to  each  variable  has  change  in  order   to  represent  the  applicability  of  each  variable  in  this  specific  investment  project,  as  follows:     Political  Risk  Analysis  Variables  =  31  points*   • Bad  Neighbors  (7  points)*   • Authoritarian  Government  (3  points)*   • Staleness  (2  points)*   • Illegitimacy  of  Regime  (3  points)*   • Generals  in  Power  (3  points)*   • War  and  Armed  Insurrection  (13  points)*     Political 50%Social 17% Economic 33% Political Social Economic Source:  Wise,  Jorge.  Análisis  de   Riesgo  País  
  4. 4.   4   Economic  Risk  Analysis  Variables  =  32  points   • Falling  GDP  per  person    (8  points)   • High  Inflation    (5  points)   • Capital  Flight    (4  points)   • High  and  rising  foreign  debt  as  proportion  of  GDP    (2  points)  *   • Decline  in  food  production    (2  points)*   • Raw  materials  as  high  %  of  exports    (4  points)   • Transportation  infrastructure  available    (7  points)**   Social  Risk  Analysis  Variables  =  37  points*   • Urbanization  (3  points)   • Islamic  Fundamentalism  (17  points)*   • Corruption  (4  points)*   • Ethnic  Tension  (4  points)   • Rejection  to  Foreign  Brands  (9  points)**     *Denotes  a  change  to  the  weight  assigned  in  The  Economist’s  1986  Country  Risk  Model.   *  Variable  not  included  in  The  Economist’s  1986  Country  Risk  Model.     The  grading  of  each  variable  is  performed  by  assigning  zero  points  to  the  best  possible   scenario,  the  maximum  number  of  points  to  the  worst  possible  scenario,  and  a  grade  to  the   country  according  to  where  it  stands  within  those  scenarios.  (Wise)   IV. EXPLANATION  OF  THE  INVESTMENT  PROJECT   The  beer  market  in  Turkey  is  controlled  mainly  by  one  company:  Anadolu-­‐Efes.  Efes   has  approximately  80%  of  the  market  share,  which  represents  a  very  unique  scenario  for   international  breweries  attempting  to  enter  the  Turkish  market.  For  a  company  like  Grupo   Modelo,  one  of  the  options  to  expand  into  the  Turkish  market  would  be  through  merging   with   an   already   established   company,   and   there   is   no   better   than   Anadolu-­‐Efes.   This   merger   would   be   only   for   operations   in   the   Turkish   market,   with   mutual   distribution   agreements  in  other  markets.  
  5. 5.   5     A   merger   is   one   of   the   riskiest   ways   to   enter   a   market   but,   besides   the   potential   high   returns   that   such   projects   bring   (Wise),  the  situation  of  the  Turkish   beer   market   might   allows   few   other  options.   This   scenario   could   represent   a   win-­‐win   situation,   providing   Grupo   Modelo   with   better   positioning   in   the   Turkish   market   and   providing   Anadolu-­‐Efes’   brands   with   the   opportunity   to   expand   globally,  taking  advantage  of  Modelo’s  worldwide  distribution  channels.   Please  note  that  this  is  a  hypothetical  investment  project,  especially  since  Anadolu-­‐ Efes  is  under  a  license  agreement  with  SABMiller,  which  owns  24%  of  Anadolu-­‐Efes’  stock.   V. ANALYSIS  OF  THE  BEER  MARKET   A. The  Turkish  Beer  Market   Turkey’s  beer  market  has  been  showing  strong  growth,  which  can  be   accredited  to  increases  in  domestic  demand  as  well  as  the  tourism  industry.   Per  capita  consumption  of  beer  is  still  relatively  low  at  11  liters  per  year.   (Turkey Business Forecast Report)     Turkey’s   largest   beverage   manufacturer   is   the   Efes   Beverage   Group,   part   of   the   Anadolu  Group,  which  accounts  for  around  80%  of  the  beer  market  in  the  country.    The   other  major  brewery  with  19%  of  the  market  is  Turk  Tuborg,  which  is  owned  by  Carlsberg.   The   state-­‐owned   brewery   Tekel   controls   a   relatively   small   share   (1%).   (Turkey Business Forecast Report)   Efes,   as   well   as   other   companies   in   the   alcoholic   beverage   industry,   performs   its   distribution  and  most  of  its  sales  through  exclusivity  agreements,  in  which  the  company   “sponsors”  businesses  with  the  requirement  that  they  do  not  sell  any  of  the  competitors’   products.   The   magnitude   and   number   of   sponsorships   given   by   the   Anadolu   Group   (for  
  6. 6.   6   beer  and  all  of  its  other  products)  raise  the  barriers  to  entry  even  for  large,  global  beer   companies  by  not  allowing  them  to  distribute  and  sell  their  products.  (Ozkanca)   B. The  Mexican  Beer  Market   The  Mexican  beer  market,  with  a  value  of  $10,580.3  million  (2010),   accounts  for  7.5%  of  the  Americas  beer  market  value.  In  2015,  the  Mexican   beer  market  is  forecasted  to  have  a  value  of  $11,621.9  million.   (DATAMONITOR)     The   Mexican   beer   market   presents   unique   duopoly   conditions:   it   is   mainly   controlled   by   2   big   groups,   Grupo   Modelo   (brewers   of   Corona   Extra,   Modelo   Especial;   among  others)  and  Cervecería  Cuauhtémoc  Moctezuma  (brewers  of  Sol,  Tecate,  Dos  Equis,   etc.).  Not  only  is  the  market  divided  between  these  two  companies,  the  barriers  to  entry   were   (and   remain)   extremely   high,   since   distribution   and   sales   are   performed   through   exclusivity  agreements.   Mexico  is  the  second  largest  economy  in  Latin  America  and  has  one  of  the  highest   per  capita  beverage  consumptions,  especially  beer,  in  the  world.  With  70%  of  value  share   (representing  about  $22  billion  in  retail  sales  in  2011),  beer  is  the  largest  alcohol  beverage   category  in  Mexico.  (The Wall Street Journal)  The  size  and  growth  of  the  market  however,   made  it  extremely  attractive  for  foreign  brewing  companies.  To  enter  the  Mexican  market,   global   companies   have   had   to   invest   in   existing   Mexican   companies.   Heineken   acquired  
  7. 7.   7   Cervecería  Cuauhtémoc  Moctezuma  in  2010  and  Anheuser-­‐Busch  has  control  over  50%  of   Grupo  Modelo’s  and  an  ongoing  negotiation  that  attempts  to  buy  the  rest  of  Grupo  Modelo’s   stock.     VI. THE  COMPANIES  INVOLVED   A. Grupo  Modelo     “Grupo  Modelo,  founded  in  1925,  is  the  leader  in  Mexico  in  beer   production,  distribution  and  marketing…  Currently  it  brews  and   distributes  13  brands,  including  Corona  Extra,  the  number  one   Mexican  beer  sold  in  the  world,  Modelo  Especial,  Victoria,  Pacífico  and   Negra  Modelo.  It  exports  six  brands  and  is  present  in  more  than  180   countries.”  (Grupo Modelo)   Grupo  Modelo  is  the  leading  player  in  the  Mexican  beer  market,  generating  a  50%   share   of   the   market’s   volume,   compared   to   the   43.3%   share   generated   by   Heineken-­‐ Moctezuma.  The  high  concentration  of  the  market  (93.3%  between  two  companies)  causes   rivalries  all  over  the  country. (DATAMONITOR)   Corona  Extra  is  currently  sold  in  more  than  170  countries  and  it  is  recognized  to  be   the  leading  imported  beer  in  almost  fifty  countries,  the  number  one  imported  beer  in  the   US,  and  the  most  popular  Mexican  beer  worldwide.  According  to  Grupo  Modelo,  the  Corona  
  8. 8.   8   Extra  brand  is  “targeted  to  people  who  are  looking  to  relax  responsibly”.  (Grupo Modelo)  It   ranks   among   the   five   most   valuable   brands   in   the   world   according   to   industry   sources.  (The  Wall  Street  Journal)   1. Acquisition  negotiations  with  Anheuser-­‐Busch  InBev   In   June   2012,   Anheuser-­‐Busch   InBev   announced   that   it   intended   to   buy   the   remaining  stake  of  Grupo  Modelo,  and  the  transaction  was  cleared  by  Mexican  authorities   in  December.  Anheuser-­‐Busch  InBev  already  owned  50%  of  Grupo  Modelo’s  stock,  and  the   negotiation   led   to   a   $20   billion   buyout   of   the   remaining   stock.   On   January   31st,   2013   however,  U.S.  regulators  blocked  the  deal  arguing  that  the  combined  share  of  46%  of  the   U.S.   market’s   sales   could   lead   to   price   dominance   and   overcharging.   (Kendall and Bauerlein)   Anheuser-­‐Busch   Companies,   Inc.   (Anheuser-­‐Busch)   is   one   of   the   leading   alcohol   brewing   companies   in   the   US.   The   company   offers   alcoholic   and   non-­‐alcoholic   beers,   energy  drinks,  bottled  water  and  other  beverages  in  US,  Canada,  and  other  regions  of  the   world.  Along  with  its  subsidiaries,  it  operates  through  four  business  segments:  Domestic   Beer,  International  Beer,  Packaging  and  Entertainment.   (GlobalData Company Profiles)   B. Anadolu-­‐Efes   Founded  in  the  beginning  of  1950s,  the  Anadolu  Group  has  47  production  facilities   and  79  companies  in  13  countries,  including  Turkey.  Anadolu  Group  mainly  operates  in   four  lines  of  business:  beverages,  automotive,  finance  and  retail.    (Anadolu Efes)   “Anadolu  Efes  Biracilik  ve  Malt  Sanayii  A.S.,  the  beverage  division  of   Anadolu  Group,  involves  in  the  production,  bottling,  distribution,  and   sales  of  beer,  malt,  and  soft  drinks.  The  company  reports  its  business   under  three  segments:  Turkey  Beer  Operations,  International  Beer   Operations  and  Soft  Drink  Operations.  The  company  has  around  33   subsidiaries  across  the  Netherlands,  Russia,  Kazakhstan,  Moldova,   Romania,  Germany,  Georgia,  Belarus,  Turkey,  Azerbaijan  and  Northern   Cyprus,  and  about  16  joint  ventures.”  (GlobalData Company Profiles)   The   Turkey   Beer   Operations   segment,   driven   by   its   flagship   brand   Efes   Pilsen,   accounted  to  about  29.97%  of  the  company's  total  revenues  and  generated  revenues  of   about   TRY   1,379.771   million.   The   International   Beer   Operations   segment   of   the   company,   Efes   Breweries   International   N.   V.   (EBI),   represents   about   34.16%   of   the  
  9. 9.   9   company's   total   revenues   and   generated   revenues   close   to   TRY   1,626.335million   in   2010.  The  Soft  Drink  Operations  segment,  managed  by  Coca-­‐Cola  Icecek  A.S.  (CCI),  with   operations   in   Turkey,   Pakistan,   Kazakhstan,   Azerbaijan,   Kyrgyzstan,   Turkmenistan,   Tajikistan,   Jordon,   Iraq   and   Syria,   represents   35.87%   of   the   company's   total   revenues   and  generates  revenues  close  to  TRY  1,712.948million.  (GlobalData Company Profiles)   The   company   also   markets   alcohol-­‐free   beer   in   neighboring   Arab   countries   that   restrict  or  prohibit  the  consumption  of  alcohol.  (Turkey Business Forecast Report)   VII. THE  TURKISH  ENVIRONMENT   A. Geography   “Being  located  at  the  crossroads  of  Asia,  Europe  and  Africa,  makes  Turkey  one   of  the  most  geopolitically  strategic  countries  of  the  world.  Because  of  having   the  shortest  intercontinental  routes,  it  is  where  the  Eastern  and  Western   civilizations  meet.  The  center  of  major  trade  and  migration  routes,  Turkey  has   Georgia,  Armenia,  Nakhchivan  and  Iran  to  the  east,  Bulgaria  and  Greece  to  the   west  and  Iraq  and  Syria  to  the  south.”  (Turkish News Agency)       Turkey  has  a  total  area  of  over  750  thousand  km2,  similar  to  the  area  that  Germany,   Italia,  Austria  and  Holland  would  cover  all  together.  Its  major  cities  are:  Istanbul,  Ankara,   Izmir,  Bursa,  and  Adana.  “Turkey  is  located  in  the  center  of  the  most  promising  markets  of  
  10. 10.   10   the  world,  providing  access  within  a  four-­‐hour  flight  to  multiple  markets  that  add  to  1.5   billion  people  and  $23  trillion  GDP.”  (Pehlivan)   B. Background  &  History  (extract  from  the  CIA’s  World  Factbook)   Modern  Turkey  was  founded  in  1923  from  the  Anatolian  remnants  of  the  defeated   Ottoman  Empire  by  national  hero  Mustafa  KEMAL,  who  was  later  honored  with  the  title   Ataturk  or  "Father  of  the  Turks."  Under  his  authoritarian  leadership,  the  country  adopted   wide-­‐ranging   social,   legal,   and   political   reforms.   After   a   period   of   one-­‐party   rule,   an   experiment   with   multi-­‐party   politics   led   to   the   1950   election   victory   of   the   opposition   Democratic  Party  and  the  peaceful  transfer  of  power.  Since  then,  Turkish  political  parties   have   multiplied,   but   democracy   has   been   fractured   by   periods   of   instability   and   intermittent  military  coups  (1960,  1971,  1980),  which  in  each  case  eventually  resulted  in  a   return  of  political  power  to  civilians.  In  1997,  the  military  again  helped  engineer  the  ouster   -­‐  popularly  dubbed  a  "post-­‐modern  coup"  -­‐  of  the  then  Islamic-­‐oriented  government.     A  separatist  insurgency  begun  in  1984  by  the  Kurdistan  Workers'  Party  (PKK)  -­‐  now   known   as   the   Kurdistan   People's   Congress   or   Kongra-­‐Gel   (KGK)   -­‐   has   dominated   the   Turkish  military's  attention  and  claimed  more  than  30,000  lives.  After  the  capture  of  the   group's  leader  in  1999,  the  insurgents  largely  withdrew  from  Turkey  mainly  to  northern   Iraq.   In   2004,   KGK   announced   an   end   to   its   ceasefire   and   attacks   attributed   to   the   KGK   increased.   Turkey   joined   the   UN   in   1945   and   in   1952   it   became   a   member   of   NATO.   In   1964,   Turkey   became   an   associate   member   of   the   European   Community.   Over   the   past   decade,   it   has   undertaken   many   reforms   to   strengthen   its   democracy   and   economy;   it   began  accession  membership  talks  with  the  European  Union  in  2005.    (CIA)   C. Demographics  and  Social  Factors   Turkey   has   a   population   of   over   74   million   habitants   with   a   median   age   of   29.7   years.   The   young   population   results   in   an   output   of   573   thousand   university   students     joining   the   labor   force   every   year.   (Pehlivan)   In   general,   the   Turkish   population   has   an   average   of   6.5   years   of   education,   and   its   weakest   point   may   remain   in   its   female   participation  in  the  labor  force,  which  is  still  at  a  very  low  24%.  (Ozlale)    
  11. 11.   11     Turkey  has  experienced  a  rapid  urbanization  that  has  resulted  in  a  high  population   density  in  a  few  regions  (see  map  above)  and  an  increase  in  the  income  gap  between  urban   and  rural  communities.  (European Environment Agency)  “Rural  poverty  has  declined  in  the   Republic  of  Turkey  over  the  past  ten  years,  but  extreme  disparities  of  income  and  poverty   levels  persist  across  the  country.  Currently  there  are  more  rural  people  living  in  poverty   than  urban  people.”  (Rural Poverty Portal)   Due   to   the   need   for   investment,   development   and   income   growth   in   areas   away   from  the  main  cities,  the  Turkish  government  has  implemented  a  new  investment  incentive   scheme  (see  map  below).  (Pehlivan)                                               Source:  ISPAT    
  12. 12.   12     D. Government  (extract  from  the  U.S.  Department  of  State  website)   The   1982   Constitution,   drafted   by   the   military   in   the   wake   of   a   1980   military   coup,   proclaims  Turkey's  system  of  government  as  democratic,  secular,  and  parliamentary.  The   prime  minister  serves  as  head  of  government,  and  the  president  serves  as  head  of  state.   The  current  president,  Abdullah  Gul,  was  elected  by  Parliament  in  August  2007  for  a  7-­‐year   term.  Pursuant  to  a  constitutional  amendment  package  approved  by  voters  in  an  October   2007  referendum,  the  president  is  directly  elected  by  the  voters  for  a  term  of  5  years  and   can  serve  for  a  maximum  of  two  terms.     Nationwide  local  elections  for  provincial  general  assemblies,  municipal  assemblies,   and  mayoral  positions  were  held  March  29,  2009.  The  AKP  received  38.39%  of  the  votes  in   provincial   general   assemblies   and   a   similar   percentage   in   municipal   assemblies.   The   Republican  People's  Party  (CHP)  and  the  Nationalist  Action  Party  (MHP)  won,  respectively,   23%  and  15%  of  the  votes.  AKP  won  10  of  16  metropolitan  municipality  mayoralties.  The   next  local  elections  are  scheduled  for  March  2013.   In  the  June  2011  parliamentary  election  for  Turkey's  61st  government,  the  Justice   and   Development   Party   (AKP)   captured   49.9%   of   the   total   votes,   and   Recep   Tayyip   Erdogan  became  the  Prime  Minister  of  a  single-­‐party  government  for  a  third  consecutive   term.  (Bureau of European and Euroasian Affairs)     Main  Government  Officials:   President  of  the  Republic-­‐-­‐Abdullah  Gul   Prime  Minister-­‐-­‐Recep  Tayyip  Erdogan   Minister  of  Foreign  Affairs-­‐-­‐Ahmet  Davutoglu                
  13. 13.   13   E. Economy     “Ever  since  the  late  president,  Turgut  Ozal,  began  lowering  trade   barriers  and  selling  off  state-­‐owned  enterprises  after  1980,  Turkey  has   been  moving  steadily  toward  a  market  economy  and  trying  to  reassert   the  economic  role  it  exercised  in  the  eastern  Mediterranean  in  the  days   of  the  Ottoman  sultanate.”  (Shuman and Rossant)   1. Gross  Domestic  Product   “Turkey  is  a  poor  country—per  capita  income  is  $5,000,  only  one-­‐fifth   of  the  U.S.—but  with  its  location  and  energetic  people,  it’s  on  the  move   economically…  Will  it  realize  its  potential?”  (Shuman  and  Rossant)         Turkey  is  ranked  among  the  20   largest   economies   in   the   world   and   sixth  largest  in  Europe (CIA),  reaching   a   GDP   (PPP)   close   to   $1.3   trillion.   While   Turkey   has   shown   some   instability   (usual   in   developing   countries)  by  having  reductions  in  its   GDP  of  almost  6%  in  some  years,  the   tendency  of  the  last  20  years  allows  a   positive  forecast  for  Turkey’s  future.  “Turkey  is  expected  to  be  the  highest  growing  OECD   member  country  between  2011  and  2017,  with  an  annual  average  growth  of  6.7%.”  (HSBC)     0   200   400   600   800   1,000   1,200   1,400   USD  billions   Turkey's  GDP:  PPP  and  constant  US$,  1990-­‐2011   GDP  (constant  2000  US$)   GDP,  PPP  (current  international  $)   Source:  World  Bank   -­‐8   -­‐6   -­‐4   -­‐2   0   2   4   6   8   10   1990   1991   1992   1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   GDP  and  GDP  per  capita  Growth   1990-­‐2009   GDP   growth   (annual   %)   GDP  per   capita   growth   (annual   %)   Source:  World  Bank    
  14. 14.   14     Probably   the   biggest   driver   of   Turkey’s   economic   growth   has   been   the   services   sector,   which   accounts  for  67%  of  Turkey’s  GDP.  Some  of  the  major   activities   in   the   industrial   sector   are   textiles,   automotive   and   steel   (Foreign and Commonwealth Office).   2. Unemployment     Unemployment,  which  reached  a  20-­‐ year   high   in   2009,   continues   to   be   an   important  issue  despite  Turkey’s  economic   growth.   Turkey’s   growth   focused   on   developing   the   services   sector   could   be   a   reason   for   the   lack   of   reduction   in   unemployment,  as  the  services  sector  does   not   employ   as   much   labor   as   the   agricultural  or  industrial  sectors.   3. Inflation   After   a   period   of   inflation   over   60%   between  1990  and  2000,  Turkey  was  able  to   bring   its   inflation   under   20%   in   2004,   and   has  managed  to  have  an  inflation  fluctuating   around  10%  since  then.     4. International  Trade   Turkey’s   location,   its   continuous   effort   to   an   open   and   private   economy,   and   its   accession  to  the  World  Trade  Organization  have  made  international  trade  one  of  the  major   components   of   Turkey’s   economy.   Turkey’s   trade   agreements   include all   EU   members   (customs  union),  Albania,  Bosnia  Herzegovina,  Croatia,  Switzerland,  Norway,  Iceland  and   Liechtenstein,  Egypt,  Georgia,  Israel,  Macedonia,  Montenegro,  Morocco,  Palestine,  Georgia,   Serbia,  Chile,  Tunisia  and  Syria  (HSBC).   0   2   4   6   8   10   12   14   16   1990   1991   1992   1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   %  of  Total  Labor  Force   Unemployment  (%  of  total  labor  force),   1990-­‐2010   Source:  World  Bank   10%   23%   67%   GDP,  per  sector   Agriculture   Industry   Services   Source:  CIA,  The  Wold  Factobook   0   20   40   60   80   100   120   1990   1991   1992   1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   InVlation,  1990-­‐2011   Inslation,  consumer  prices  (annual  %)   Source:  World  Bank    
  15. 15.   15   5. EU  Accession   “On 14 April 1987, Turkey applied for membership of the European Communities. In the Opinion of the European Commission, which was issued in 1989, it was concluded that Turkey was eligible for membership but it would be appropriate for the time being to postpone the decision to be made on Turkey’s membership. Following Turkey’s communication declaring the wish to take part in the new enlargement process launched in 1996, Turkey was admitted as a candidate for the EU membership on 10-11 December 1999.” (European Environment Agency) F. Competitiveness   Turkey’s   strategic   geographical   location   is   a   natural   boost   in   its   competitiveness,   which  has  increased  since  the  late  1990s.  However,  in  order  to  continue  the  increase  in  its   competitiveness   a   series   of   reforms   are   needed,   which   go   from   public   administration,   taxation  and  labor  market  rigidities  to  a  new  constitution.   Turkey  has  several  industries  with  a  large  market  share  but  a  slow  growth   rate,  such  as  agriculture,  textiles  and  clothing.  Turkey’s  newer,  faster-­‐growing  industries,   such  as  iron,  steel,  metals  and  electrical  machinery,  have  not  been  able  to  acquire  a  large   market  share.  This  situation  leaves  Turkey  with  several  rising  sectors  but  no  “star  sector”.   (Ozlale)   An   important   factor   that   hampers   Turkey’s   competitiveness,   according   to   researcher  Umit  Ozlale  from  the  Economic  Policy  Research  Foundation  of  Turkey  (TEPAV),   is   the   lack   of   highways   and   infrastructure.   To   this   date,   Eastern   Turkey,   including   the   emerging  “Anatolian  Tigers”,  does  not  export  to  the  EU  because  its  products  are  unable  to   be  transported  across  the  country.  (Ozlale)   G. Tourism   Tourism  has  become  an  important  component  of  Turkey’s  GDP.  Turkey’s  location,   its  first  world,  high-­‐end  city  in  Istanbul,  and  its  paradisiacal  beaches  on  the  coast  of  the   Aegean  and  Mediterranean  Sea,  have  helped  the  country  in  becoming  one  of  the  new  go-­‐to   destination  for  tourists.    In  2011,  Turkey  was  the  6th  most  visited  holiday  destination  in  the   world  receiving  29.3  million  tourists.  (Pehlivan)  
  16. 16.   16   VIII. COUNTRY  RISK  ANALYSIS     A. The  Economist  1986  Country  Risk  Model   1. Political  Risk     VARIABLE WEIGHT SCORE ASSIGNED ANALYSIS BadNeighbors 7 7 Considering the most favorable scenario (0 points) as having good, stable, economically growing neighbors with good relations, and the worst possible scenario (7 points) as having conflicting neighbors with economic, social and political instability; Turkey is assigned 7 points. With Iraq, Iran and Syria (and other MENA countries) and their wars, conflicts and political instability, the EU with its recent crisis (especially Greece), and former soviet countries, it is hard to imagine a worse scenario when it comes to neighbors and nearby countries than Turkey's. Authoritarianism 3 2 Considering the most favorable scenario (0 points) as a broad perception of a democratic government, and the worst scenario (3 points) as the existence of an authoritarian government; Turkey is assigned 2 points. While the government is broadly seen as democratic, several actions by the government are still authoritarian, such as the continuous increase in burdens and taxes to alcoholic beverages by the current party in power, AKP. (Turkish Muse) Staleness 2 1 Considering the most favorable scenario (0 points) as a government administration that changes within every five to ten years, and the worst scenario (2 points) as a non-changing, long-lasting government administration; Turkey is assigned 1 point. While the administration terms are limited to 5 years (with possibility to one re-election), staleness has been present throughout Turkey's history when it comes to parties in power. The current party has been in power for over 10 years. Illegitimacy 3 0 Considering the most favorable scenario (0 points) as a government administration that is widely recognized as legitimately, and the worst scenario (3 points) as a government which the majority of the population consider illegitimate; Turkey is assigned 0 points since its government administration is generally recognized as legitimate. Generalsin Power 3 1 Considering the most favorable scenario (0 points) as the inexistence of generals in power, and the worst possible scenario (3 points) as a current military dictatorship; Turkey is assigned 1 point. Turkey has a few generals in power, however their authority, which took a hit after the resignation of several generals in 2001 (Matthews), is limited to military and national security areas. Turkey's current constitution, on the other hand, was drafted in 1982 by the military. War,Strife,and ArmedInsurrection 13 10 Considering the most favorable scenario (0 points) as the absence of current or potential wars and rebellions, and the worst possible scenario (13 points) as the existence of a current war; Turkey is assigned the score of 10 points. While not felt in most of the country, especially Istanbul, Turkey is currently in conflicts with Afghanistan (armed conflict), the KPP party, Iraq (sporadic incursions as part of the KPP conflict), Cyprus (occupation of Northern Cyprus), and Libya (contribution to military interventions). (ADH-Geneve) Total Political Risk 31 21  
  17. 17.   17   2. Economic  Risk     VARIABLE WEIGHT SCORE ASSIGNED ANALYSIS FallingGDP perperson 8 2 Considering the most favorable scenario (0 points) a constantly rising GDP per capita, and the worst scenario (8 points) an unstable, quickly declining GDP per capita; Turkey is assigned a score of 2 points. While Turkey is expected to be the fastest growing OECD member with a GDP per capita average growth rate of 6%, these numbers are just expectations and Turkey's GDP per capita has been very unstable in the past 20 years. High Inflation 5 3 Considering the most favorable scenario (0 points) a relatively small or inexistent inflation, and the worst scenario (5 points) a double-digit inflation; Turkey is assigned 3 points. While Turkey's inflation is nowhere near 1990s levels, it still currently fluctuates around 10%. CapitalFlight 4 0 Considering the most favorable scenario (0 points) as the inflow of foreign capital, and the worst possible scenario (4 points) as high levels of capital flight; Turkey is assigned 0 points. "In the last decade, the number of Turkish firms and FDI outflows has fostered impressively" (Yavan), however this is just a result of Turkey's economic growth. The inflow of foreign capital is still much superior than the outflow of domestic capital. HighandRising ForeignDebtasa ProportionofGDP 2 1 Considering the most favorable scenario (0 points) as a foreign debt representing a low and declining percentage of the country's GDP, and the worst scenario (2 points) as a high and growing foreign debt as percentage of the GDP; Turkey is assigned 1 point. While Turkey occupies the 26th place in countries with the highest foreign debt as percentage of GDP (Anatolia News Agency), the foreign debt is still relatively small (considering it is a developing country) at 40% of GDP (Pehlivan). Declinein Food Production perPerson 2 0 Considering the most favorable scenario (0 points) as the increase in food production per person, and the worst scenario (2 points) as the rapid decrease in food production per person; Turkey is assigned 0 points. Turkey's food production has increased in the past 10 years, from 104 to 117 index points. (United Nations Statistics Division) Transportation Infrastructure Available 7 6 Considering the most favorable scenario (0 points) as the availability of a wide transportation infrastructure network, and the worst scenario (7 points) as the lack of transportation infrastructure being an issue for commerce, Turkey is assigned a grade of 6 points. While transportation infrastructure is not an issue in western Turkey, Eastern Turkey cannot export to the EU due to lack of transportation infrastructure. RawMaterials asaHigh percentageof Exports 4 2 Considering the most favorable scenario (0 points) as a low and decreasing percentage of raw materials as exports, and the worst scenario (4 points) as a high and increasing percentage of raw materials as exports; Turkey is assigned 2 points. While Turkey has diversified its exports and has continuously increased the exports of industrial goods, raw materials still account for 44% of all merchandise exports. (Trading Economics; Turkish Muse; Turkish Muse) Total Economic Risk 32 14    
  18. 18.   18   3. Social  Risk     VARIABLE WEIGHT SCORE ASSIGNED ANALYSIS Urbanization 3 2 Considering the most favorable scenario (0 points) as a relatively small or inexistent net migration to cities, and the worst scenario (3 points) as an accelerated migration from rural areas to major cities, Turkey is assigned 2 points since 70% of the population live in urban areas, which have resulted in a loss of productivity in the rural areas. The annual urbanization rate fluctuates around 2%. (IndexMundi) IslamicFundamentalism 17 15 Considering the most favorable scenario (0 points) as the absence of Islamic and religious fundamentalism, and the worst scenario (17 points) as the significant presence of Islamic fundamentalism; Turkey is assigned 15 points. The Islamic religion accounts for 98% of the population, and while major cities like Istanbul are less fundamentalist, other regions remain more conservative (Taran). Islam has not kept beer consumption from growing, but temperance remains in practice in some parts of the society. It is also said that a move back to a more fundamentalist Islamic country is in place, with examples such as the government slowly taking actions on a "war against alcohol." (Turkish Muse) Corruption 4 2 Considering the most favorable scenario (0 points) as the inexistence of corruption and the shared values of honesty and transparency, and the worst scenario (4 points) as the perception of corruption amongst all levels of government and society; Turkey is assigned 2 points. While not at all levels, corruption is present in Turkey. As a partner of one of Istanbul's largest restaurant groups mentioned, regulations are not an issue when you know people. (Ozkanca) Transparency International ranks Turkey as the 54th most corrupt country in the world. (Transparency International Organization) EthnicTension 4 4 Considering the most favorable possible scenario (0 points) the existence of a balance ethnic diversity amongst the population, and the worst scenario (4 points) as the existence of a dominant ethnicity with high tension towards other ethnic groups; Turkey is assigned 4 points. Throughout its history and continuing in recent years, Turkey's division between Turkish and Kurds, along with their neighboring countries ethnics, have resulted in a constant high ethnic tension. (ADH-Geneve) RejectiontoForeign Brands 9 7 Considering the most favorable scenario (0 points) as the broad acceptance of foreign brands and companies, and the worst scenario (9 points) as the reluctance to accept foreign brands due to a nationalistic market; Turkey is assigned 7 points. While global brands have successfully entered the Turkish market, most of these are in the fast-food sector. It is still very rare to see global brands in products. Global companies have entered the Turkish market through agreements, mergers and acquisitions of/with local companies. It is noticeable that Turkish like to relate to the product/company they are consuming or doing business with. (Ozkanca) Total Social Risk 37 30 Total Country Risk 100 65  
  19. 19.   19   IX. RECOMMENDATION   After  analyzing  the  Turkish  environment  and  performing  a  country  risk  analysis  on   Turkey,   it   is   clear   that   investing   in   Turkey,   as   in   most   developing   countries,   is   a   risky   expansion  project.  However,  for  a  company  like  Grupo  Modelo,  which  possesses  a  global   brand  as  Corona  Extra,  the  Turkish  market  presents  endless  opportunities.     A  country  risk  grade  of  65  out  of  100  represents  the  risks  all  companies  encounter   in  the  Turkish  market,  certainly  highlighting  the  lack  of  infrastructure  to  transport  goods   across   the   whole   country,   Turkey’s   armed   conflicts   and   the   unstable   situation   of   its   neighbors   and   surrounding   nations,   and   the   historical   and   resurging   Islamic   fundamentalism.  While  the  Turkish  seem  to  have  a  nationalistic  nature  and  therefore  tend   to  reject  foreign  brands,  entering  the  market  through  a  merger  with  Anadolu-­‐Efes  resolves   any  concerns  this  may  cause  on  Grupo  Modelo.   Considering  the  economic  growth  in  Turkey,  which  is  projected  to  have  an  average   rate   of   6.7%   through   2007,   and   the   constant   increase   in   beer   consumption,   Turkey   is   a   great   market   for   Grupo   Modelo   to   invest   in.     The   similarities   between   the   Turkish   beer   market  and  the  Mexican  beer  market  in  matters  of  competition  and  distribution,  along  with   Grupo  Modelo’s  expertise  and  history  of  success,  leverage  the  risks  this  investment  may   present.  Turkey’s  emergence  as  one  of  the  world’s  main  tourist  destinations,  especially  its   paradisiacal  beaches  on  the  Aegean  and  Mediterranean  Sea  coasts,  presents  a  well-­‐known   path  to  success  for  Grupo  Modelo’s  Corona  Extra.   For   Anadolu-­‐Efes,   on   the   other   hand,   a   merger   with   Grupo   Modelo   provides   the   opportunity   to   learn   from   the   Mexican   company’s   expertise   in   transforming   a   nation-­‐ leading  company  into  one  of  the  most  dominant  brewing  companies  in  the  world.            
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