Reference no: EM132227608

Integrative Case

Would you invest in Turkey?

By: Canan Mutlu

Turkey has tremendous economic dynamism potential, but also some non-trivial problems. Can turkey attract investors? What do countries do to attract investors? The answer to this question usually involves improving infrastructure, increasing standards of living, and ultimately making doing business easier and less costly for investors. However, in today’s world, and increasing number of countries are also running campaigns all over the world to attract investors attention and increase awareness about their countries business opportunities. Turkey is one of the emerging economies with an impressive campaign with the running title of “Invest in Turkey .”

Turkey is the 18th largest economy in the world with a per capita income that has nearly tripled in less than a decade and now exceeds US$10,000. Turkey is a transcontinental country with lamb spanning from southeastern Europe to western Asia. The majority of turkeys when is known as Asia Minor or the Anatolian peninsula, which is founded by the Black Sea to the north, the Mediterranean sea to the south, and the Aegean see to the west. Turkeys location enables the country to have a unique brokerage position between Europe and Asia. In fact, you can see the welcome to Europe and the welcome to Asia sign at the two exits of the bridges in in Istanbul that unite both continents over the Bosphorus strait. Turkey is not only a geographically but also a historically attractive lamb, thanks to its roots that date back to the agent Greece, Rome, the Byzantines, the ottoman empire, and Central Asia.

However, all these unique qualities do not guarantee a competitive advantage for turkey and make it a better country to invest. Well known management scholar Michael Porter argues that national prosperity is created, not inherited. Accordingly, one of the most comprehensive assessments of national competitiveness, Global Competitiveness Report, evaluates the competitiveness of 148 economies, providing insight into the drivers of their productivity and prosperity. In 2013, turkey green time 44th among 140 countries. During the last decade, due to its vibrant business in 2013, turkey green time 44th among 140 countries. During the last decade, due to its vibrant business environment, turkey has shown stronger economic growth in many European counterparts. This is mostly fueled by a large domestic market (ranked 16th) and intense local competition (ranked 15th). However, in order to sustain the economic growth, the country needs to shift it’s focus into areas such as education and training to increase its competitiveness in labor market efficiency (ranked 130). Overall, turkey shows increasing trend in terms of economic growth, market size, and market efficiency. However, there are still problematic areas, such as intellectual property protection, judicial independence, educational system, energy costs, and effect of taxation on incentives to invest that raise serious red flags with the stain ability of economic growth.

Economic Growth and Investment

Do you to major economic and structural reform, turkey has rapidly turned into a major recipient of foreign direct investment (FDI) and increased its integration with the goal be economy, accompanied by study economic growth over the last decade. The goals of the new reforms include increasing the role of private sector and encouraging entrepreneurs to pursue their startups to inject new blood into the economy a solid outcome of these initiatives have been the average gross domestic product (GDP) growth rate of 5.4% between 2002 and 2011, compared to 1.6% in the US and 1.4% in European Union.

The majority of Turkey’s trade is with Europe and the Middle East. In addition to the customs union agreement with the European Union, turkey also enjoys free trade agreements with Albania, Bosnia and Herzegovina, Chile, Croatia, EFTA member countries (Iceland, Norway, Switzerland, and Liechtenstein), Egypt, Georgia, Israel, Jourdan, Macedonia, Montenegro, Palastine, Serbia, South Korea, Syria, and Tunisia. It’s largest export markets are Germany, a rug, and Britain. It’s important markets are mostly driven by Russia, China, in Germany. Turkey has also shown boring FTI inflows increasing from US$8.6 billion in $2009 to US$12.9 billion in 2013. Jordi of the FTI flows to industrial sectors, manufacturing, and service areas and is dominantly from Europe followed by near Eastern and middle eastern countries. Turkey has especially become an attractive destination for wealthy middle east investors who search for more secure shores outside of countries riddled with unrest from the Arab Spring.

Given the economic growth, turkey is now considered a “new tiger” among foreign investors. One of the leading reasons for this nickname is Turkey’s successful weathering of the 2008 through 2009 global economic crisis driven by modern infant structure, economic reforms, and also the young and dynamic workforce enabling and attractive investment site. As of 2013, with 76.6million citizens with a median age of 30, turkey is the second most populous country after Germany and has the youngest population in Europe. Young in dynamic population fuels the nations envision towards being a major hub of manufacturing and innovation therefore along with some other emerging economies, such as Argentina, Brazil, Mexico, and Russia, turkey is now considered in transition from efficiency driven to innovation driven countries. Indeed, Jim O’Neil, chairman of Goldman Sachs asset management and inventor of the acronym BRIC for the fourth largest emerging economies (Brazil, Russia, India, and China), has recently come up with a new acronym, MIST. Turkey is the tea among the new for some of fast track MIST Countries that include Mexico, Indonesia, and South Korea.

The EU Agenda and Problematic Borders

Turkey has a complicated relationship with the EU, although the EU is turkey’s largest economic partner, accounting for46% of Turkish trade into011. Becoming a candidate for full membership in the EU in 1999, turkey has long been at the door of the EU to become a full member. Accession go she Asian‘s have led to numerous institutional reforms benchmarked on the EU standards, yet could not end in full membership because of a number of political obstacles and particularly problematic borders. Surrounded by Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Syria, Iran, and Iraq, Turkey borders potential war zones and, thus, is under the influence of roaring political conflicts. Turkey is not only confronted by problematic borders, but also faces social conflicts within its own borders.

For example, during the Spring of 2013, turkey witness one of the largest social unrest, referred to as Gezi Protests, which included a wide range of complaints such as issues of freedom of the press, increasing authoritarianism, the war in Syria, and concerns over secularism. All these problems lead to ongoing political instability and social tensions within the country, increasing business wrist and adding weights on investor confidence on the business environment.

Despite certain problems, turkey is a stable democratic country in one of the most unstable parts of the globe. Given its growth potential and ongoing concerns, it is viewed as a “high risk, high return” option among investors. Therefore, although the country’s economic outlook remains unfavorable compared to the rest of Europe, there remains ample room for improvement. Well turkey has been resilient to the recent global financial crisis, it’s challenge is to increase competitiveness and ultimately to sustain economic growth. To continue to be hey safe house in a volatile neighborhood, turkey needs to speed up institutional reforms in areas such as judiciary system to promote a less-volatile investment environment and also sharpen the educational system to shape the young population into skilled workers. Turkey is not only at the crossroads between East and West, but also sits at the thin line between emerging in advance economies. Future reforms will determine whether the country will become an economic powerhouse or stay as a forever emerging economy.

Answer the following case discussion questions (please refer to outside sources):

1. Discuss the major competitive advantages and disadvantages for Turkey.

2. How can emerging economies such as Turkey mitigate certain competitive disadvantages?

3. As an executive of a multinational based in Australia that is interested in undertaking FDI in emerging economies, would you be interested in investing in Turkey among many options around the world?

4. You will often hear people referred to the dollar as the "World‘s Revenue Currency". That isn’t quite true- there are five reserve currency‘s, but the dollar is dominant by far, being used for more world exchange that any of the other four reserve currencies together there are a number of reasons for this, but you can take it as a given for now. The dollar has been dominant since the Bretton Woods System, established in 1944. Being the dominant currency has given us a lot of benefits, but it is eventually self-defeating. There is a huge amount of world trade, and it takes a huge number of dollars to facilitate it. I have seen estimates that there are as many as $100 outside the country for every one dollar inside (no one really knows for sure).

How do you think all those dollars get out into the world in order to be used for trade? I don’t necessarily expect you to come up with the right answer to this (and won’t grade on that basis), tell me what you think it might be, and then discuss the issues. Remember that I said, having the world‘s dominant currency used for international trade is self-defeating (and even self-destructive). Think about this- could you answer as to the source of these dollars eventually do that in any way? Be creative.