Legal factors include discriminatory practices and laws, partisanconsumer law, anti-trustlaw administered on undertakingsbreaching public trust, harsh employmentlaws and health and safety law. These factors canaffect how a company operates, its costs, and the demand for its products.DL: Even though theconstitutional system of Turkey is based on the equality of all individualswithout discrimination before the law, irrespective of “language, race, color,gender, political opinion, philosophical belief, religion and sect, or any suchconsideration”, there is a slow shift to islamist nationalism. Accordingto the Gender Gap Index (2015) of World Economic Forum, Turkey is the130th country out of 145 countries, which means, Turkey whichis the 17th biggest economy in the world ranks among the lowestcountries (last 15th) in terms of gender equality.
2 outof 5 women are exposed to physical and sexual violence at least one in theirlifetime. NEW TURKISH COMMERCIALCODE: BOT Model (Build,Operate,transfer) is adopted to gain a lead inindustrial promotion and investment financing. Key sectors are industry andservices (Tourism), Chemical,Energy,Automobiles. Privatization Programmes, Newinvestment incentive schemes are designed to encourage investments, reducedependency on the imports of intermediary goods vital to country’s strategicsectors.
The Primary Objective is to reduce the Current Account Deficit, boostInvestment support for lesser developed regions, increase the level ofsupportive instruments and promote clustering activities and investment thatwill create transfer of technology. To increase local and foreign investment,support instruments such as Exemption and refund of VAT, Exemption,VAT Refund, Exemptionof custom Duty Tax, low levels of interest rate, allowance withholding, reducing income tax, etc are doled out. Breach of trust laws : Exorbitant fines are imposed by the Turkish CompetitionAuthority towards undertakings causing breach of trust . This has resulted in awarenessof competition law around the country. The Authority determinesinfringements during its investigations.
A maximum fine upto 10% of the company’sprevious year’s turnover can be levied. Additionally the aggrieved party mayfile a case for damages and the judicial authorities may impose compensationsup to the three times of the actual damage. In addition, attorneys’ fees, costof litigation and/or mandatory expenditure made during the course of the investigationsmade by the Turkish Competition Authority may compound the litigation fees.
.Employment laws: 10.8%of the labour force is unemployed. Womenconstitute 30% and men account for 70% ofthe labour force. A whopping 34% worked 50 hours or more- this being the highestin any OECD nation.
Intellectual Property (IP): IP rights areterritorial in nature. This means that if you are thinking about tradinginternationally, then you should consider registering your IP rights in your exportmarkets. Contracts: Turkish importers tend to use standardisedform of contracts in their transactions. Foreign contracts are seldom acceptedfor fear that they may be trapped by unfamiliar contract stipulations. Addingspecial provisions to the contract form is normally acceptable. Terms of priceand shipment- Turkish import businesses often conduct transactions at FOBprices in consideration for using Turkish shipping companies.
Cost and freightand Cost Insurance and freight terms are accepted only if the freight is provedto be cost-effective. Also Turkish importers generally have “openinsurance” for their import cargos. Terms ofpayment- are normally by letter of credit.
Inspection Certificates regarding quality,quantity or weight of goods– issued by manufacturers or public assessors – arenormally required as part of the process of setting up a letter of credit. Ifthe goods are discovered not to be in conformity with the certificates afterre-inspection by Turkish inspection authorities, the buyer will either returnthe goods to the seller or lodge claims against the seller for compensation onlosses on the strength of inspection at the port of destination. In the case ofheavy equipment imports, Turks often insert a clause in the contractwithholding a portion of the payment – normally 5 to 10% of the total contractvalue – which will be paid only when the equipment is installed andcommissioned.
Resolution of Disputes: In cases of dispute, a formalcontract must have a provision that the solution must be sought throughfriendly consultation. Arbitration is adoptedto settle the dispute, in some cases, although it must be said that arbitrationis not widely used in Turkey. Litigation is used only as a last resort. Social factors affecting business includethe cultural aspects and health consciousness of the country, population growthrate, age distribution, career attitudes and emphasis on safety.
For example, growth rate includes the ageingpopulation and may imply a smaller and less-willing workforce (thus increasingthe cost of labour). In such a scenario, companies may change variousmanagement strategies to adapt to social trends caused from recruiting olderworkers.Populationis 76.9 million. Every fit male Turkish citizen otherwise notbarred is required to serve in the military, it being the 2nd largest militaryforce behind the US for a period ranging from three weeks to a year, dependenton education and job location. Culture: Culture of Turkey sees clear efforts of combining modernizationand westernization into the social fabric since the 1800s keeping intact traditional,religious and historical values. This results in a chaotic cultural identityand a constant bridging of unequal ethics and sensibilities.
Foreign Relations: Turkeyis not part of EU yet but has formed a customs union for industrial productsand processed agro products (Common external tariff, Elimination of all customsduties i.e a drop from 10% customs duty to 0). It is EU’s 4th largest exportmarket and 5th largest provider of imports. Turkey is also EU’s #1export (44%) import (38%) partner. Turkey is the 2nd largestrecipient of FDI in West Asia behind Israel. Turkey reached record high 22 bnUSD in 2007. FDI flows to Turkey decreased to 17.
5 bn in 2015 and 12.1 bn in2016 according to the Turkish Ministry of Economy. Turkey has signed bilateralagreements with 81 countries.
Factors Hindering FDI:a) Politicalinstability (Attempted coup in 2016),weak Currency, Inflation and Proximity toconflicts in Middle East. Accordingto 2016 Global Peace Index, Turkey ranked 145th out of 163 countries in theworld, mainly because of its conflict with Kurdish insurgents, its invasion ofCyprus and the military intervention in Syria. Minority groups other than thethree religious minorities recognized in the Treaty of Lausanne (Armenians,Greeks and Jews) do not have any official rights. According to thelatest sources by Ipsos,347in 2016 Islam was the major religion in Turkeycomprising only 82% of the total population, followed by the unaffiliatedpeople who comprised 13% of the population, and Christianity with 2%.b) Social fabric: With a change inleadership Turkey is gradually shifted from Mustafa Pasha’s secular traditionto a Islamic nationalism.c) Turkey often fails to notify WTO aboutnon tariff barriers(Implementation of Reference Price Systems, New documentrequirements, lengthy inspections. Agro trade is subject to tariff quotas andprice regulations.
The Turkish Procurement system is prone to opaque and lengthytendering processes. Series of legislative reforms to facilitateforeign investment, creation of ISPAT,FDI inflows improved in light of thedevelopment of pub-pvt partnership for major infrastructure projects, structuralreforms in banking and finance sectors, robust growth rates, measures tostreamline admin procedures and strengthen intellectual property protection, endof FDI screening and structural reforms carried out as EU ascension project. Govt. can jail citizensthat question the govt. or openly support the Kurds which has led to a highlevel of self- censorship. Turkey ranks 154th out of 179 countriesin the World Press Freedom Index.
Turkey under Tayyip Erdo?an and the AKP hasbeen described as becoming increasingly authoritarian.Human Rights- Freedomto life, life free from torture, Kurdish rights, women’s rights, LGBT rights,and press freedom, have also attracted controversy. Turkey’s human rightsrecord continues to be a significant obstacle to future membership in theEU.
AKP govt isaccused of the world’s biggest crackdown on media freedom. Large number ofjournalists have been arrested using charges of “terrorism” and”anti-state activities, on charges of “denigrating Turkishness”or “insulting Islam” in an effort to sow self-censorship. As of 2017, the CPJidentified 81 jailed journalists in Turkey. In reaction to the failed coup d’état on 15July 2016, over 125,000 judges, teachers, police and civil servants have beensuspended or dismissed, 36,000 have been formally arrested, and 130 mediaorganisations, including 16 television broadcasters and 45 newspapers, havebeen closed by the government of Turkey. Turkey’s judicial system has been wholly integrated with thesystem as that of continental Europe. In the years of government by the AKP andTayyip Erdo?an, particularly since 2013, the independence and integrity of theTurkish judiciary has been questioned by institutions, parliamentarians andjournalists both within and outside of Turkey; due to political interference inthe promotion of judges and prosecutors, and in their pursuit of publicduty. Challenges to doing business in Turkey: social andlegalBribery and Corruption: Anyone doing business in Turkey is likely toencounter or hear of corruption in one form or another, although the level ofcorruption varies according to sector, type of business and region. However,the general perception is that the situation is improving.
The OECD (Organisation for EconomicCo-operation & Development) has assessed Turkey to have made significantprogress since 2007 in its efforts to combat bribery in international businessdeals by fully implementing all but one of the recommendations of the OECD’sWorking Group on Bribery. However, the Turkish media has reported that asignificant number of Turks believe bribery and fraud to be common in Turkey. Terrorism: There is a threat from terrorism withinTurkey and a number of terrorist groups remain active in the country. The mainterrorist group operating in Turkey is the separatist Kurdistan Workers Party(PKK). Street robbery, burgularies and pick-pocketing are common. Organised Crime: The main organised crime threat inTurkey relates to the trade in narcotics.
Turkey remains a key transit countryfor heroin destined for Western Europe from Afghanistan. With the growth of theTurkish economy, Turkey may also find itself becoming more attractive as adestination country for Organised Immigration Crime.