TURKEY Geography of Turkey Turkey is a Eurasian country located mainly in the Anatolian peninsula in Asia Minor, with a small

portion of its territory located in the Balkan region of Southeast Europe. Turkey borders eight countries: Bulgaria to the northwest; Greece to the west; To the northeast, Georgia, Armenia and the Nakhichevan exclave of Azerbaijan; Iran to the east; and Iraq and Syria to the southeast. Furthermore, it borders the Black Sea to the north; the Aegean and Marmara Seas to the west and the Mediterranean Sea to the south. Main facts about Turkey
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Language: Turkish Area: total: 780,580 sq km land: 770,760 sq km water: 9,820 sq km Climate: temperate; hot, dry summers with mild, wet winters; harsher in interior Population: 75,705,147 (2011) Religion: Moslem, 99% Income category: Upper middle income GNI per capita (US$): 9,500

Rich Natural Resources Turkey ranks tenth in the world in terms of the diversity of minerals produced in the country. Around 60 different minerals are currently produced in Turkey. The richest mineral deposits in the country are boron salts and Turkey s reserves amount to 72% of the world s total. Turkey is by far the world's largest producer of boron.

CULTURE OF TURKEY Contains every extreme of Eastern and Western culture. 99.8% are Muslims 0.2% are Jews and Christians A fusion and refinement of Turkic, Arabic, Greek, Armenian and Persian cuisines. Turkish business works on personal relationships.

Turkish management tends to be top down, bosses don t expect initiatives from subordinates and they expect orders to be carried out. Turks are individualists and can be quite competitive in teams. POLITICAL REGIME Turkey is democratic, secular and social state governed by the rule of law; committed to the nationalism of Atatrk and based on the principle of the separation of powers. Legislative power: The Turkish Grand National Assembly Executive power: President and the Council of Ministers Judicial power: Independent courts and supreme judiciary organs LEGAL SYSTEM Derived from various European legal systems; accepts compulsory ICJ jurisdiction, with reservations. Member of the European Court of Human Rights (ECHR) Suffrage: 18 years of age, universal. Constitutional Court; High Court of Appeals; Council of State; Court of Accounts; Military High Court of Appeals; Military High Administrative Court. ECONOMIC PROFILE Agriculture sector accounts for more than 35% of employment. The largest industrial sector is textiles and clothing, which accounts for one-third of industrial employment. The automotive and electronics industries, are rising in importance within Turkey's export mix Strong economic gains from 2002-07, which were largely due to renewed investor interest in emerging markets, IMF backing, and tighter fiscal policy. The economy is still burdened by a high current account deficit and high external debt. ECONOMIC INDICATORS Between 2002 and 2010: y GDP increased by 218 percent, reaching USD 736 billion y Annual average real GDP growth of 4.8 percent y Inflation decreased from 30 percent to 6.4 percent y Public debt stock decreased from 74 percent of GDP to 42 percent of GDP y Budget deficit decreased from 10 percent of GDP to around 3 percent of GDP
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COUNTRY RISK ECONOMIC RISK Inflation Rate: Turkey s inflation rate, measured by the consumer price index, declined from an average of 70.4% in the period of 1993-2002 to 7.7% at the end of 2005, the lowest reading in over three decades. POLITICAL RISK y PRE-ELECTION SPENDING WORRIES - Prime minister Erdogan's take on reforms and timing of the election. y GOVERNMENT-MILITARY TENSIONS - Concerns that the AK Party was seeking to undermine Turkey's secular system y KURDISH GUERRILLA VIOLENCE - A resumption of clashes may fuel nationalist sentiment.

DIPLOMATIC TESTS - Any event that could add to concerns that Turkey's foreign policy is shifting away from the West COMPETITIVE RISK y it is hard to keep its competitive position in the world market full of emerging players. Thus, manufacturers have shifted their operations to value-added products and creation of brand names. Currently, 30% of Turkish manufacturers have their own designs and brands in international markets. As current studies reveal, developed countries will have a decreasing share in global textile production while the developing countries will increase their manufacturing capacity to meet the increasing demands. Turkey, with its adaptability to European standards and regulations related to environment, health, quality, and safety is aiming to move into the production of more and more value added products, into an era in which the Turkish textile industry will be known for its quality trademarks and will be pricing a product for the Made in Turkey sign. Membership of International Organizations WTO IMF NATO 1952 Council of Europe - 1949 Expects entry into EU UN Organisation for Economic Co-operation and Development (OECD), An Associate Member of the Western European Union Organization of the Islamic Conference G20 industrial nations Turkey maintained Greece s support for membership in the European Union (EU). Between 2004 and 2008 domestic support for Turkey s EU membership dropped from 70 percent to 40 percent. Relations with the United States, close since the beginning of the Cold War, were damaged in 2003 when Turkey refused to allow U.S. troops to cross into Iraq from Turkey.

TRADE BARRIERS Tariffs and Quantitative Restrictions: Turkey maintains high tariff rates (25 percent average Most-Favored-Nation rate) on many food and agricultural products to protect domestic producers. It also levies high duties as well as excise taxes and other domestic charges on imported alcoholic beverages. Import Licenses and Other Restrictions: The lack of transparency in Turkey s import licensing system, which result in costly delays, demurrage charges, and other uncertainties that stifle trade for many agricultural products. Standards, Testing, Labeling And Certification: The Turkish government has a poor track record of notifying WTO members of proposed technical regulations and phytosanitary requirements, and implementation appears to be arbitrary. EXPORT SUBSIDIES: Turkey employs a number of incentives to promote exports.

Services Barriers: There are restrictions on establishment in financial services, the petroleum sector, broadcasting, and maritime transportation. Corruption: Corruption is perceived to be a major problem in Turkey by private enterprise and the public at large, particularly in government procurement.

PRIMARY IMPORT & EXPORT FOREIGN TRADE

Foreign Direct Investment USD 9.1 billion (2010) Number of Companies with Foreign Capital 25,500 (2010) Major Exports Markets Germany (10.1%); UK (6.3%); Italy (5.7%); Iraq (5.3%); France (5.3%) (2010) Major Imports Sources Russia (11.6%); Germany (9.5%); China (9.3%); USA (6.6%); Italy (5.5%) (2010)

Imports Agriculture Mining and and General forestry quarrying Manufacturing 43.2 48.4 71.8 38.5 55.9 58.7 78.2 51.3 69.1 68.0 78.6 65.3 67.3 66.6 79.9 63.4 66.6 61.6 77.6 63.1 88.3 88.6 85.3 84.6 66.4 63.9 82.3 62.3 80.2 70.5 93.4 76.3 100.0 100.0 100.0 100.0 121.7 93.3 101.4 127.4 136.1 104.2 107.5 144.2 147.7 99.6 116.3 156.9 166.6 142.0 124.8 177.2 164.1 148.6 120.1 174.7 143.2 128.2 101.8 153.4 173.0 149.8 112.0 188.6 (In US$) Source: http://www.turkstat.gov.tr/ INDIAN MNC IN FOCUS- ADITYA BIRLA GROUP Agriculture and forestry 86.2 101.7 95.1 97.4 95.8 75.8 106.4 95.2 100.0 90.2 93.0 112.5 100.6 108.3 116.5 123.2

Exports Mining and quarrying Manufacturing 60.1 35.0 58.9 38.1 63.8 44.3 62.4 49.1 66.8 50.9 73.7 58.3 71.7 70.7 72.0 83.5 100.0 100.0 117.0 115.5 134.5 127.8 166.7 142.4 206.9 159.4 242.4 169.0 248.8 155.5 338.4 164.6

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

General 37.8 41.4 47.0 51.5 53.1 59.1 72.3 83.7 100.0 114.3 126.2 141.3 157.0 166.7 154.8 164.6

Fishing 19.0 24.1 35.2 18.7 35.5 25.1 39.6 45.7 100.0 109.5 165.5 170.1 180.4 239.2 218.4 165.7

The Indian MNC under focus is the apparel company- GRASIM under the Aditya Birla Group. Grasim Industries Limited, a flagship company of the Aditya Birla Group, ranks among India's largest private sector companies, with consolidated net revenue of Rs.202 billion and a consolidated net profit (before extraordinary items) of Rs.27.6 billion (FY2010). Starting as a textiles manufacturer in 1948, today Grasim's businesses comprise viscose staple fibre (VSF), cement, chemicals and textiles. Its core businesses are VSF and cement, which contribute to over 90 per cent of its revenues and operating profits. The Aditya Birla Group is the world s largest producer of VSF, commanding a 21 per cent global market share. Grasim, with an aggregate capacity of 333,975 tpa has a global market share of 10 per cent. It is also the second largest producer of caustic soda (which is used in the production of VSF) in India. IN FOCUS We shall now concentrate on how our Indian MNC- GRASIM can enter the Turkish economy/market to invest in that country. Let us study this in a step by step detailed approach using various International Trade Theories.

Entry Strategy: y Joint Venture between Grasim (Aditya Birla Group) and a cloth company in Turkey. The simplest way to enter the Turkey market. GRASIM and its various Indian brand clientele such as Allen Sollly, John Players, Louis Phillipe, Arrow and Color Plus. Also, it has international clients like Levis, United Colors of Benetton, Debenhams, Marks & Spencers and NEXT, has already given it a well established name in the apparel sector. There are several leading players in Turkey like Karaca textile and Beymen, Mithal and LWC, Network which can enter into a joint venture with Grasim Industries Limited.

COUNTRY ATTRACTIVENESS: WHY TURKEY? Turkey's agriculture sector has been ranked 7th in terms of agricultural production in throughout the world. One of the largest producer of hazelnut, fig, apricot, cherry, quince and pomegranate. The country has been acknowledged as the > 2nd largest producer of watermelon, lentil & pistachio > 4th largest producer in terms of onion & olive production. > 6th largest tobacco, tea & apple producer > 8th largest producer of almond in throughout the world. The nation has been positioned on 21st rank in terms of industrial production output in all over world. Its construction and contracting industry is known as one of the most leading and competitive industry in all over world. The Turkey market is emerging and gradually becoming more sophisticated.

We shall use the Porter Diamond Trade Theory to read the domestic Turkey market for the apparel segment:Porter s Diamond Model:

DEMAND CONDITIONS Implications for SMEs: In order to meet international demand, MNEs should improve their quality of products and their supply chain to improve their competitiveness Concentrate more on brand building, marketing and advertising activities. Strong supply chain and logistic support The Turkish market gradually becomes more sophisticated. International customers want more quality, diversity, variety and better supply management FACTOR CONDITIONS y There are enough facilities, schools, universities, courses and trainings to educate people for the textile and apparel sector: textile engineering faculties, vocational textile faculties, garment faculties, vocational garment faculties, vocation fashion schools Qualified and competitive labour force Over 25 million young, well-educated and motivated professionals 4th largest labour force compared with the EU The longest working hours, and the lowest sick day leaves per employee in Europe (53.2 hours worked per week and annual average of 4.6 sick days per employee) Approximately 500,000 graduates from 156 universities Energy is scarce. Firms should be economical with energy Western originated laboratories have set up branch offices in Turkey Turkey has its own cotton production The capital level is low, the banks provide little to no loans for investment

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RELATED AND SUPPORTING INDUSTIES y There are many organisations, co-operations, and institutions, which do work together. Cooperation and information sharing exists among these organisations, but there is a lack of coordination. Coordination could be established by sector specific employer s organisations, through i.e. structured and regular communication between all parties involved, in the long term aiming at a common sector policy y Cooperation exists between many related industries and sub-industries (painting & dyeing, packing, chemicals, yarn production, machinery etc.) and the textile and apparel industry y Most of the firms are SMEs. They can only concentrate on a few activities. Other activities are being outsourced to other companies or industries y Turkey has an integrated and diversified production in all sub-sectors of the textile industry FIRM STRATEGY, STRUCTURE AND RIVALRY y Two segments dominate Turkey s textile and apparel industry: The spinners and weavers, who use high quality domestic raw materials to produce textiles, these include (top) brand name firms such as Karaca, Beymen, Network, Mithal and LCW. These firms keep market standards high with original designs

Apparel manufacturers, who use a combination of domestic and imported cloth to produce finished non-branded goods, these include non-branded firms who market their products through 3rd party retail chains. Non-branded products currently make up the majority of the industry s domestic and export sales Many of Turkey s leading manufacturers maintain top global reputations. To maintain this quality, well-known local brands, such as Beymen and Vakko, train their design staff in European fashion capitals. This facilitates exports and also allows apparel firms to directly compete in the domestic market against foreign brands

NATURAL ADVANTAGE Turkey enjoys the natural advantage in the following areas: y Minerals Turkey is the tenth ranked producer of minerals in the world in terms of diversity. Around 60 different minerals are currently produced in Turkey. The richest mineral deposits in the country are boron salts and Turkey s reserves amount to 72% of the world s total. y Petroleum and natural gas Turkey is an oil and natural gas producer, but the level of production isn't large enough to make the country self-sufficient, which makes Turkey a net importer of both oil and gas. However, the recent discovery of new oil and natural gas fields in the country will help Turkey to reach a higher degree of self-sufficiency in energy production. y Geothermal Energy Turkey has the fifth highest direct utilization and capacity of geothermal power in the world. y Energy Security Turkey is a partner country of the EU INOGATE energy programme, which has four key topics: enhancing energy security, convergence of member state energy markets on the basis of EU internal energy market principles, supporting sustainable energy development, and attracting investment for energy projects of common and regional interest.

Acquired Advantage y Turkey has labour force qualified as skilled labour, engineers, competent senior managers, etc. The qualified labour force scores for 2010 are as follows:

Telephone system: General assessment: The telephone system is undergoing rapid modernization and expansion especially with cellular telephones Domestic: remote areas are reached by a domestic satellite system; the number of subscribers to mobile-cellular telephone service is growing rapidly The country code of Turkey 90 International service is provided by the SEA-ME-WE-3 submarine cable and by submarine fiber-optic cables in the Mediterranean and Black Seas that link Turkey with Italy, Greece, Israel, Bulgaria, Romania, and Russia Turkey has telecommunications infrastructure consisting of the following users and subscribers:

It can be seen that majority of the subscribers use mobile telephone y Turkey has 45 airports out of which 13 are international. The railways are owned and operated by the Turkish State Railways, a public corporation. The total contribution of 10,984 km. The following table gives the data of transportation infrastructure in Turkey :

The following data gives data about Turkey s energy infrastructure. It has a gross consumption of 209,493 GWh.

COUNTRY COMPARISON TOOL: A thorough environment scanning of various countries would help ABG (GRASIM) to shortlist few countries for finally zeroing in on the strategic collaboration country. For the purpose of country comparison several tools could be used like : y GRIDS- They shall depict acceptable and unacceptable conditions and rank countries by important variables. MATRICES- An opportunity-risk matrix helps a company to decide on various indicators and their weights. Once the indicators are established, each country is established based on weights.

(The scope of our project is limited to using GRID as the country analysis tool. The country comparison is based on real data of Turkey and Indonesia, while we have introduced two pseudo countries with hypothetical data namely country A and B.)

SIMPLIFIED- COUNTRY COMPARISON GRID BASED ON SEVERAL INDICES

Country Variable Turkey Indonesia WeightTurkey Ease of Doing Business Rankings scale of 181 Global Competitiveness report- scale of 139 Global Services Location Index- scale of 50 Inward FDI Potential Index- on scale of 141 Status Index (Political and Economic Transformation- on scale of 128 Tax Misery & Reform Index- on scale of 66 Total 59 129 3 WeightIndonesia WeightA WeightB

62

44

48

72

100

20

40

24

47

19

18

12

11

The Grid table is a hypothetical example of the various parameters, with actual data taken from the Country websites. In reality, Aditya Birla Group shall look at other parameters as well which it shall consider most important while country evaluation. As, we see that Country- Turkey is the most attractive because it is regarded highest through the variable ranking and weights. Conclusion India and Turkey, regional powers in their own respective geopolitical areas, have the potential to expand trade and investment relations exponentially in the coming years. There are immense possibilities for economic collaboration, joint projects and investments in these regions that are mutually beneficial. Turkey's strengths are in traditional textiles and clothing and with India s conglomerate Aditya Birla group having commendable experience is manufacturing and retailing of textile investing in Turkey will be a win-win proposition. After an analysis of Turkey s business environment and opportunities, we can conclude that the joint would be highly successful for all the stakeholders.