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Journal of Small Business Management 2009 47(1), pp.


Entrepreneurs in Turkey: A Factor Analysis of Motivations, Success Factors, and Problems

by Cynthia Benzing, Hung Manh Chu, and Orhan Kara

One hundred and thirty-nine entrepreneurs in Ankara, Turkey were surveyed to determine their motivations for business ownership, the factors contributing to their success, and their problems. Based on survey responses, the primary reasons for starting a business are to increase income, to obtain job security, and to secure independence. According to the factor analysis, small and medium-sized enterprises owners are driven more by income rewards than intrinsic rewards. The most important business success variables are the entrepreneurs reputation for honesty and friendliness. Social skills and good customer service were also cited as critical success factors. The most serious problem faced by entrepreneurs in Turkey is the complex and confusing tax structure. Other important problems include unreliable employees, the inability to maintain good records, and a weak economy.

Turkey has long been regarded as a strategic link between Europe, Asia and the Middle East. Its unique geographic position and political system are major reasons why Turkey has caught the interest of business researchers in recent years. Turkey straddles two continents and two economic worlds: in the west are the more developed economies of

the European Union (EU), while in the south and east are less-developed countries from the Middle East and the former Soviet Union. It shares borders with Azerbaijan, Armenia, Bulgaria, Georgia, Greece, Iran, Iraq, and Syria, and controls shipping trafc in and out of the Black Sea. In addition to its strategic geographical position, Turkey has a political system unique among Muslim cultures. Although 99.8 percent of

Cynthia Benzing is a professor of economics and nance at West Chester University of Pennsylvania. Hung Manh Chu is a professor of management at West Chester University of Pennsylvania. Orhan Kara is an associate professor of economics at West Chester University of Pennsylvania. Address correspondence to: Cynthia Benzing, Economics and Finance Department, West Chester University, West Chester, PA 19380. Tel.: 610-436-2217 (work); Fax: 610-436-2592; E-mail: cbenzing@wcupa.edu; cdbenzing@aol.com.



Turkeys population is Muslim, it is a secular democracy with the potential for even greater individual rights and freedoms. Europe has long recognized Turkeys importance as a trading partner and a military partner. Turkey has been a NATO member since 1952, and was an associate member of the EU, formerly the European Economic Community from 1963 to 1999. In 1999, Turkey was recognized as a candidate for full membership in the EU, but the membership talks that began in October 2005 have been contentious. Turkey has made some progress in meeting EU requirements, but its lack of progress on minority rights, freedom of speech, and recognition of Cyprus has hurt Turkeys progress toward accession. Europe has always had an ambiguous attitude toward Turkeys membership in the EU. Although most Europeans understand the need for a close relationship with Turkey, some nations fear being overwhelmed by the economic needs of Turkeys 71 million citizens. As of 2005, 20 percent of the Turkish population still lived below the poverty line, and Turkeys GDP per capita (in purchasing power standards) was just 28.5 percent of the EUs GDP per capita. (Eurostat 2007; Turkish Statistical Institute 2007). To help Turkey meet its economic goals, the EU has committed 682.7 million in preaccession nancial assistance for 2008, and has plans to continue nancial aid through its many outreach programs. (European Commission 2007a). Even if Turkey does not become a full member of the EU, it will need to continue to work with the International Monetary Fund (IMF) and its other economic partners to create an environment conducive to the development of entrepreneurship. Because a strong private sector is essential to long-term economic growth, this study examines the behavior of 139 small business owners in Ankara, Turkey to determine their motives,

needs, and problems. Through a better understanding of their concerns, Turkey can work toward creating a business environment that will contribute to a stronger, more stable economy and bring Turkish incomes closer to those of other EU nations.

It has been widely agreed that there is a positive correlation between economic growth and entrepreneurship (Acs and Audretsch 2003; Audretsch and Keilbach 2003; Carree et al. 2002). Empirical researchers indicate that the contribution of entrepreneurship to economic development is signicant, especially in the area of employment creation. The importance of small rms to the strength of economies in the United Kingdom, Europe, and the emerging countries of the Far East is well established. In the United Kingdom, 99 percent of the businesses are small businesses that account for 59 percent of the nations employment (Small Business Service 2006). In Europe, 99.8 percent of the business enterprises are small and medium-sized enterprises (SMEs) that employ twothirds of the total workforce (World Bank 2007a; European Commission 2003). Japan has 6 million SMEs that account for 99.7 percent of all businesses in the country and 70 percent of the total labor force (METI 2007), while South Korean SMEs provide 80 percent of all jobs in the country (Euromonitor International 2006). According to Schapers (2006) study, at least 97 percent of all rms in 19 European countries, Australia, New Zealand, the United Kingdom, and the United States are SMEs. And of those SMEs, the largest single group is microenterprises, which make up 82 percent of the rms in Australia and 92 percent of the rms in 19 European countries. SMEs play a similar role in Turkeys economy. As of 2000, SMEs accounted for 99.8 percent of the total number of



enterprises and 76.7 percent of total employment (OECD 2004). Among Turkish manufacturing rms, 99.3 percent are SMEs (1150 employees), employing 56 percent of all manufacturing workers (Republic of Turkey Ministry of Industry and Trade 2006). Because of its importance, the Turkish government has made a commitment to support the growth of the SME sector by ratifying the European Charter for Small Enterprises in 2002 and participating in the Multi-Annual Programme for Enterprise and Entrepreneurship (OECD 2004). The governments major agency of SME support is the Small and Medium Industry Development Organization (KOSGEB), which is part of the Ministry of Industry and Trade. Its primary goal is to improve [the] SMEs share and efciency in [the] Turkish economy and enhance their competitive capability (Republic of Turkey Ministry of Industry and Trade 2006). In this role, it is charged with improving the training, nancing and managerial skills of SME entrepreneurs (Republic of Turkey Ministry of Industry and Trade 2006). Turkeys Ninth Five-Year Development Plan includes objectives and targets to improve the countrys business environment. The plan would increase SME access to nancial markets, improve Turkeys infrastructure, and facilitate the usage of new communication technologies (Republic of Turkey 2007). As will be discussed later, the ve-year plan also recognizes the need to reduce the complexity of the tax system. Although EU membership could still be 1015 years away, the Turkish government has been preparing for accession to the EU for many years. As part of its preparation, Turkey has curtailed government debt as a percentage of GDP, reduced the size of the public sector, reduced ination, and freely oated the Turkish lira. The Turkish economy has improved dramatically since its nancial crisis in 2001. Ination has dropped from 70 percent in 1999 to about 9 percent in

2006 (Turkish Statistical Institute 2006). Real GDP growth was a healthy 7 percent in 2006, and is expected to amount to 6 percent in 2007, putting its real GDP per person slightly lower than Romania (Madslien 2006). In 2006, unemployment was approximately 9.1 percent, although nonagricultural unemployment was slightly higher at 12 percent (Turkish Statistical Institute 2006). Despite these improvements, Turkeys economy faces ongoing scal problems. Increases in government spending planned for 2007 may increase the debt and current decit, which could lead to double-digit ination again. As a result, the International Monetary Fund (IMF) and Organisation for Economic Cooperation and Development (OECD) have called for renewed scal vigilance requiring improvements in Turkeys tax system, nancial sector, and pension planning (Todays Zaman 2007; Madslien 2006; OECD 2006). Because of the importance of entrepreneurship to the growth and stability of the Turkish economy, this study examines the motivations, success factors, and problems facing entrepreneurs in Turkey. However, the results of this survey go beyond Turkey, and can be applied with caution to other economies as well. The study of entrepreneurship is still in its nascent stage, and much remains to be understood about the motivations of entrepreneurs and their success factors. This study contributes to a better understanding of entrepreneurial theory by providing further evidence about the primary motivators, what entrepreneurs believe they need for success, and their problems.

Literature Review
Because literature on Turkish entrepreneurship is somewhat limited, reliance on studies of small businesses in other countries and regions of the world is necessary for a more complete understanding of the motivations, perceived



success factors, and problems of small business owners in Turkey.

Motivations of Entrepreneurs A number of surveys of entrepreneurs provide insight into the motivational aspects of the entrepreneurial experience. Kuratko, Hornsby, and Naffziger (1997) and Robichaud, McGraw, and Roger (2001) surveyed North American entrepreneurs to determine how motivation relates to business success. Findings from their studies show that motivation falls into four categories: (1) extrinsic rewards, (2) independence/autonomy, (3) intrinsic rewards, and (4) family security. Extrinsic motives are the economic reasons that entrepreneurs work, whereas intrinsic motives are related to self-fulllment and growth. Because Kuratko, Hornsby, and Naffziger and Robichaud, McGraw, and Roger concentrated on the relationship between motivation and business success, they did not indicate which motivations were the strongest among entrepreneurs. The motivating factors may differ across countries due to differences in income levels and employment opportunities. In their study of Vietnamese small business owners, Swierczek and Ha (2003) found that challenge and achievement were more signicant motivators than necessity and security. A study of motivation by Benzing, Chu, and Callanan (2005), however, discovered a regional difference in Vietnam. Entrepreneurs in Ho Chi Minh City were more motivated to start a business for personal satisfaction and growth, whereas entrepreneurs in Hanoi were more motivated by the need to create a job for themselves and family members. Since Hanoi suffers from a weaker economy and a higher jobless rate than Ho Chi Minh City, entrepreneurs in Hanoi may be more motivated by income and security needs. In Romania, income and job security needs were signicantly stronger motivators than self-satisfaction and per-

sonal needs (Benzing, Chu, and Szabo 2005). In contrast, entrepreneurs in Andhra Pradesh, India were most strongly motivated by the desire for interdependence/autonomy, that is, to be their own boss. The second strongest motivator was to increase their income (Benzing and Chu 2005). In their study of entrepreneurship in China, Pistrui et al. (2001) found that personal and family security were the primary reasons for entrepreneurs to start a business. In Africa, Ugandan entrepreneurs indicated that making a living or making money is the most important reason for their business ownership (Bewayo 1995). Findings from the study also showed that a majority of entrepreneurs (61 percent) preferred business ownership over working for a corporation because of autonomy, freedom, and independence (Bewayo 1995). A study of entrepreneurs in Kenya and Ghana (Chu, Benzing, and McGee 2007) found that the strongest two motivators were to increase income and to provide themselves with employment. Similarly, Roy and Wheeler (2006) found that microenterprise owners in West Africa were motivated by a desire to satisfy basic physiological needsfood and shelter. In general, it appears that micro and SME entrepreneurs in low-income countries are more likely to be motivated by income needs, whereas those in higher income countries are driven by higherorder needs like self-esteem and selfrealization. According to Ozsoy, Oksoy, and Kozan (2001), entrepreneurs in Turkey are motivated to start their own businesses to provide security for themselves and their family, to make a direct contribution to the success of a company, and to increase income. Other important motivations are a desire for exibility, work freedom, and to be his/her own boss. According to Cetindamar (2005), gaining work independence is the most important motivation for Turkish entre-



preneurs working in technologyproducing rms. Other crucial motives include the creation of employment opportunities, high income, and personal satisfaction. Female business owners in Turkey indicate that gaining work independence and creating an employment opportunity are the most important reasons for starting a business (Cetindamar 2005). Based on a 1996 survey of Turkish female entrepreneurs, Ufuk and Ozgen (2001a) found the primary motives for becoming an entrepreneur were, in order of importance, to meet the familys needs, to initiate social contacts, and to experience selfactualization. Because the Turkish economy has experienced erratic performance, one may speculate that business owners might be more motivated by extrinsic rewards such as increasing income and creating a job for themselves than by intrinsic or independence motives. However, at the same time, Turkey is considered a middle-income country; consequently, higher-order needs for personal fulllment may have taken hold. This study will hopefully contribute to an understanding of the forces that motivate entrepreneurs to start a business. Learning more about business owners motives could help policymakers design a variety of programs to motivate the creation of new businesses and to support the continuation of existing SMEs.

Success Variables The variables that contribute to the success of small businesses are not unanimously agreed upon by researchers. Most entrepreneurial studies have concentrated on a few sets of variables: (1) the psychological and personality traits of entrepreneurs; (2) the managerial skills and training of entrepreneurs; and (3) the external environment. With respect to psychological and behavioral traits, Frese, Brantjes, and Hoorn (2002),

Hodgkinson (2001), and Olson and Bokor (1995) found that the ability to engage in strategic planning is related to entrepreneurial success. Other psychological attributes such as a drive for independence, innovative orientation, attitude toward risk, and a competitive nature have also been found to relate to success (Frese, Brantjes, and Hoorn 2002; Koop, Reu, and Frese 2000; Dess, Lumpkin, and Covin 1997; Covin and Slevin 1989). According to Frese, Brantjes, and Hoorn, these attributes are especially important when an entrepreneur is working in a difcult business environment. Other researchers (Rauch and Frese 1998; Dess, Lumpkin, and Covin 1997; Covin and Covin 1990; Covin and Slevin 1989) agree that psychological traits contribute to business success, but they are often moderated by experience and training, specic managerial skills, and the business environment. Since the accurate measurement of psychological traits requires psychological testing, and these traits are often inherent in the entrepreneurs psychological make-up, this study does not attempt to measure or determine these traits in the survey respondents. Instead, this study seeks to determine what other factors the entrepreneurs themselves perceive as necessary for business success. In contrast to psychological traits, managerial skills, training, and environmental conditions are factors more easily developed and altered by policymakers. Managerial skills would include the ability to manage personnel and maintain accounting records, whereas environmental conditions would be related to satisfactory government support, access to capital, and support of family and friends. Numerous studies of entrepreneurs in developing countries (Chu, Benzing, and McGee 2007; Benzing, Chu, and Callanan 2005; Benzing, Chu, and Bove 2005; Benzing, Chu, and Szabo 2005; Yusuf 1995; Gosh, Kim, and Meng 1993; Huck



and McEwen 1991; Busch 1989) have sought to determine the management skills and environmental conditions most critical for their success. In Huck and McEwens (1991) study of Jamaican small business owners, three areas were identied as the most important competency areas: management, planning and budgeting, and marketing/selling. Specic competencies within those areas were maintaining nancial records, possessing human relations skills, and establishing goals and objectives. In a study done by Yusuf (1995), South Pacic islanders considered good management skills, access to nancing, personal qualities, and satisfactory government support the most critical success factors. In a 2003 survey, Vietnamese entrepreneurs selected friendliness toward customers as the most important success factor, with a good product at a good price a close second (Benzing, Chu, and Callanan 2005). Romanian entrepreneurs ranked friendliness to customers, a reputation for honesty, and good customer service as the top three success factors (Benzing, Chu, and Bove 2005). Perceptions of success factors may be partially determined by the education of the entrepreneurs, the competitive level of the market, and/or the extent of government assistance. In a study conducted among Kenyan entrepreneurs Neshamba (2000) found that the ownermanagers previous experience, understanding the needs of customers, access to capital, and hard work were viewed as important success variables. Similarly, Pratts (2001) study of Kenyan entrepreneurs found the availability of capital, possession of business skills, previous experience, and support of family members are essential for business success. According to a study of Ghanaian and Kenyan entrepreneurs, hard work was considered the most important success factor, with customer service the second most important variable (Chu, Benzing, and McGee 2007).

Ibrahim and Goodwin (1986) conducted a factor analysis of the variables contributing to successful small businesses in Canada and the United States. They found four success factors: entrepreneurial values, managerial skills, interpersonal skills, and environmental characteristics. The entrepreneurial values were psychological in nature and included characteristics such as intuition, extroversion, attitude toward risk, exibility, and a sense of independence. Managerial skills included variables such as having a niche strategy, an effective budget system, experience, education, and a simple organization structure. The interpersonal skills factor was comprised of good customer relations, good employee relations, and good interpersonal skills. Finally, the environmental characteristics included interest rates, taxes, and governmental assistance. In a recent study of small business owners in Pakistan, entrepreneurs rated three factors as particularly important to their success: hard work, good customer service, and good product quality (Coy et al. 2007). Factors that were not considered important were government programs and training programs. In a study of Turkish entrepreneurs, Kozan, Oksoy, and Ozsoy (2006) found that business management training and nancing are signicantly related to an SME owners expansion plans. To be specic, Turkish entrepreneurs need market information, technical assistance, information resources, and training in nance and marketing to accumulate the resources necessary for expansion.

Problems Facing Entrepreneurs The problems facing entrepreneurs in developing countries are often quite similar. First, entrepreneurs in most developing countries face an unstable, highly bureaucratic business environment. The laws governing private enterprise, especially business registration and taxation systems, are overly complex



and difcult to understand. Contract and private property laws are often poorly designed and/or enforced. As described by Gray, Cooley, and Lutabingwa (1997), Ivy (1997), Kiggundu (2002), Pope (2001), and Stevenson (1998), the unfavorable institutional/regulatory environment is often accompanied by the added expenses of corruption and bribery. According to Benzing, Chu, and Callanan (2005), Chu, Benzing, and McGee (2007), and Pratt (2001), other problems faced by entrepreneurs in developing and transition economies include a generally weak economy, limited access to nancial capital, an inability to hire reliable employees, and too much competition. As described by Benzing, Chu, and Bove (2005), Cook (2001), Gray, Cooley, and Lutabingwa (1997), Levy (1993), Little, Mazumdar, and Page (1987), Mroczkowski (1995), Peel and Wilson (1996), and Spring and McDade (1998), SME owners in developing and transition economies often complain about insufcient capital. According to Ozsoy, Oksoy, and Kozan (2001), small business owners in Turkey report similar problems obtaining loans from governmental and/or private institutions. Business owners must rely on family resources to meet their nancial needs. As pointed out by Kozan, Oksoy, and Ozsoy (2006), Turkish SMEs only received a paltry 34 percent of loanable funds in 2005, although they employed 50 percent of the workforce that same year. Kozan, Oksoy, and Ozsoy (2006) contend that inadequate nancing signicantly impedes the ability of Turkish business rms to grow. Although the micronance system is underdeveloped in Turkey, KOSGEB has recently established Business Development Centers to provide training as well as start-up nancing for 500 women entrepreneurs over the next three years (Can 2007). With support from the EU, the World Bank, and the International Finance Corportation (IFC), other micronance projects are under consideration.

Another problem common to entrepreneurs in developing countries is overregulation, which often results in lengthy and costly delays in clearances and approvals (Macculloch 2001). In Kenya, entrepreneurs complain of long delays in getting approval for trade licenses and business registration. Complicated tax forms, heavy control by government, and outright misinterpretation of laws are common problems faced by small business owners in Kenya (Chu, Benzing, and McGee 2007; Pratt 2001). Turkish entrepreneurs appear to face some of the same bureaucratic difculties. According to Cetindamar (2005), the bureaucracy in public ofces, municipalities, and at customs is viewed as the most serious problem facing entrepreneurs in Turkey. The second most critical problem is unstable and uncertain state policies. Every government has the potential to encourage and support business development through effective tax policies, licensing procedures, and employment laws, but when a bureaucracy becomes too burdensome or redundant, it can stie the very economic growth it was designed to promote.

The Effect of Gender on Problems The gender of a business owner may inuence the problems he or she faces in Turkey. Turkish women entrepreneurs experience many difculties in starting and running a business. A majority of these problems are derived mostly from the communitys view of a womans place in society (Ufuk and Ozgen 2001b). With regard to the problems encountered during the start-up phase, Ufuk and Ozgen found that 88 percent of women entrepreneurs consider an inability to obtain capital the most important obstacle. Bureaucratic procedures and a lack of prior experience are also critical barriers to their success. As described above the major problems reportedly facing entrepreneurs in Turkey relate to government bureau-



cracy, lack of nancing, a weak economy and a traditional view against business ownership by women. Results of this study will provide more insight into the ongoing problems encountered by entrepreneurs so that better measures can be taken to promote the growth of entrepreneurship.

Survey and Methodology

The denition of an SME varies from organization to organization and from country to country. The denition used in this study is based on the number of employees and is currently used by the OECD (OECD 2005) and the United Nations Economic Commission for Europe (UN-ECE 2006). According to the OECD and UN-ECE, an SME has less than 250 employees. Data used in this study was collected under the supervision of Dr. Mustafa Celikten, an associate professor of education at Erciyes University in Turkey, during the summer of 2006. The two interviewers were educational specialists employed by the Presidency of Religious Affairs of the Republic of Turkey as government employees. The surveys were not conducted as part of their governmental jobs, but outside their ofcial capacities. Using simple random sampling Dr. Celikten selected 200 businesses from the 37,922 entrepreneurial establishments (proprietors) registered with the Ankara Chamber of Commerce Directory. (The total number of businesses registered with the Ankara Chamber of Commerce Directory is 115,001, which includes all types of businesses, from small businesses to corporations.) Of the 200 businesses selected, 23 businesses were excluded because they employed over 250 persons. Of the 177 remaining businesses, six businesses were closed or otherwise not reachable and 32 businesses either declined to answer the survey or ended the survey prematurely. Out of the 177 businesses in the sample,

139 businesses answered the survey questions, which is a 78.5 percent response rate. Surveys lasted from 20 minutes to one hour, with an average interview lasting 30 minutes. Ankara was chosen for the survey because of its potential for economic growth through the development of its small business sector. As the capital of Turkey, Ankara serves as the countrys administrative and diplomatic center and is home to all foreign embassies. It is also the educational center of Turkey, with 10 well known universities. Although Istanbul is larger, Ankaras strategic location, population, and industrial/administrative base create an attractive domestic market. Located in the center of Turkey, Ankara lies along the main EastWest rail line across Turkey and is connected to Europe via the Trans-European Motorway. A new AnkaraIstanbul high-speed train is planned for 2008, which will cut travel time by almost two-thirds (Todays Zaman 2007). The city is also home to the second largest airport in Turkey. Compared with Istanbuls 1214 million residents, Ankaras population may seem small. However, Ankaras current population of 3.2 million is expected to grow to 4.6 million by 2010 (Ankara Chamber of Industry 2007). The citys population is already large enough to create a sizable domestic market for services and products. In recent years, some of the countrys largest construction companies and defense industries have relocated to Ankara. Other industries include tractors, lumber, furniture, pasta, our, vegetable oil, paint, carpets and textiles, and beer and wine. Tourism has become increasingly important and has stimulated growth in the service industry. Although some businessmen concede that Ankara will never be bigger than Istanbul, it has become a modern retailing center, with nine large shopping malls already built and a dozen other shopping centers in the planning stages (Hawkes 2007).



The questionnaire was originally designed and written in English. It was translated into Turkish and checked for intertranslator consistency. The questionnaire used in this study was developed by Hung M. Chu (Chu and Katsioloudes 2001) and has been used in studies of entrepreneurs in Vietnam, Romania, India, Kenya, and Ghana (Chu, Benzing, and McGee 2007; Benzing and Chu 2005; Benzing, Chu, and Callanan 2005; Benzing, Chu, and Szabo 2005). The motivation variables are similar to those suggested in the work of Robichaud, McGraw, and Roger (2001), and Kuratko, Hornsby, and Naffziger (1997). Many problems in the survey are common to entrepreneurs in both transition and developing countries. The reliability of the survey instrument was deemed satisfactory since the Cronbach alphas and Guttman split-half coefcients were relatively high for the motivation items, perceived success variables, and the problem items. The alpha and the splithalf coefcient for the motivation items were 0.758 and 0.754, respectively. For the perceived success variables, the alpha was 0.850, and the split-half coefcient was 0.745. For the problem items, the alpha was 0.837, and the split-half coefcient was 0.795. The strengths of the motivation variables, perceived success variables and problems were measured using a vepoint Likert scale. For motivations and perceived success variables: 5 was extremely important, 4 was very important, 3 was mildly important, 2 was not very important, and 1 was unimportant. For problem variables: 5 was a very serious problem, 4 was a serious problem, 3 was a problem, 2 was a minor problem, and 1 was not a problem. A higher mean score on a variable would indicate greater importance. To determine if the score on one variable is signicantly different from the score on another, the Wilcoxon rank sum test was used (also called the MannWhitney

test). The Wilcoxon rank sum test was used instead of a t-test because the scores were not normally distributed as determined by the AndersonDarling test. When analyzing ordinal data that has non-normal distribution, the Wilcoxon test provides a more powerful test of the difference between two population medians (Hollander and Wolfe 1999). The item-by-item analysis was followed by a factor analysis to determine whether the motivations, success variables, and problems group together on signicant factors. Correlation analysis, principal component analysis, and a scree plot were used to establish the factors. Then, a principal component factor analysis with an equamax rotation was used to determine the factor loadings and communalities. A summated scale or score was calculated for each factor to determine which factor had the greatest inuence on the business owners. Each summated scale is an average of the Likert scores on the variables included in that factor. The Wilcoxon rank sum test was used to determine if one summated scale (factor) was signicantly different from another. As explained earlier, the Wilcoxon test is a more powerful statistical test of the differences given that the data is non-normally distributed.

Sample Characteristics As shown in Table 1, 91 percent of entrepreneurs surveyed identied themselves as male, and 9 percent as female. This nding is consistent with previous studies on Turkish entrepreneurs (Kozan, Oksoy, and Ozsoy 2006; Cetindamar 2005; Ozsoy, Oksoy, and Kozan 2001) and the role of Turkish women in the labor force. Women only comprise 26.7 percent of the Turkish labor force, with the highest participation rates in the 2529-year-old group. Once Turkish women marry, they often leave the labor



Table 1 Sample Characteristics of Small and Medium-Sized Entrepreneurs in Turkeya (N = 139)

Frequency Entrepreneurial Characteristics Gender Male Female Average Age of Entrepreneur (years) Level of Education No Formal Education Some Grade School Completed Grade School Some High School Completed High School Some College Completed College Graduate Degree Enterprise Characteristics How the Business Was Established Established by You Bought from Another Inherited Average Age of Business (years) Average No. of Full-Time Employees Average No. of Part-Time Employees Type of Business Retailing Wholesaling Service Manufacturing Agriculture Multiple Types of Business


127 12 41.1 1 21 17 7 44 9 32 6

91.4 8.6

0.7 15.3 12.4 5.1 32.1 6.6 23.4 4.4

92 28 10 13.6 24.9 1.4 42 14 27 24 16 16

66.2 20.1 7.2

30.2 10.1 19.4 17.3 11.5 11.5

Not all respondents answered all questions; consequently percentages may not total to 100 percent. Two respondents declined to answer the question related to their education, nine respondents declined to answer how their business was established. Percentages are based on the total number of respondents (139).

force to become housewives and mothers (Turkish Statistical Institute 2006). When the Republic was founded in 1923, a secular European law was adopted, allowing women to play a more important role in every aspect of Turkish

life, but the number of women in business and in the work force has remained low (Ufuk and Ozgen 2001b; Arslan 2000). Table 1 also shows that the average age of entrepreneurs is 41 years. With



respect to education, 32 percent of the respondents nished high school (and continued no further), and 28 percent completed college. When asked how their businesses were established, 66 percent indicated that they had created the business themselves, 20 percent had bought from others and 7 percent reported that they had inherited their businesses. Nine respondents declined to answer this question. Perhaps issues related to inheritance, etc., were viewed as too personal. The sample is dominated by micro and small-sized enterprises. The number of full-time employees per rm ranges from 1 (self-employed) to 250, with an average of 24.9 full-time employees per rm. Based on the UN-ECE denition of SMEs, 58 percent of the rms would be considered microenterprises, since they employ 10 full-time persons or less. Eighty-nine percent of the sample would be considered micro and small-sized enterprises because they employ 50 fulltime persons or less. Ten rms (or 11 percent) are large enough to be considered medium sized. The average number of part-time employees per rm is 1.4, and the average age of the businesses is 14 years. Retail businesses comprise 30 percent of the sample, while service and manufacturing businesses represent 19 and 17 percent, respectively. This is similar to the sample obtained by Ozsoy, Oksoy, and Kozan (2001) and Ufuk and Ozgen (2001a). Eighteen of the businesses were franchises, and 22 were partnerships. Turkish entrepreneurs reported working an average of 70 hours per week. The time devoted to business by Turkish business owners is comparable with that found in countries like Vietnam, Romania, and India (Benzing and Chu 2005; Benzing, Chu, and Callanan 2005; Benzing, Chu, and Szabo 2005). Kenyan business owners, however, reported working an average of 45 hours per week, while Ghanaian

entrepreneurs reported working an average of 38 hours per week in their businesses (Chu, Benzing, and McGee 2007). The lower hourly commitment may be the result of a business strategy common to African entrepreneurs. They often maintain multiple businesses to reduce the potential for loss associated with any one business failure; thus, fewer hours are devoted to any one enterprise. In the case of Turkish entrepreneurs, multiple business ownership does not appear to be a common business strategy. When asked from whom they sought advice before establishing their business, 67 percent of the entrepreneurs surveyed had sought advice from family members. The second and third most frequently consulted groups were friends and other business owners, respectively. Relatively few SME owners consulted legal advisors, nancial advisors, and/or banks.

Motivations of Entrepreneurs Respondents were asked to rate 11 reasons for deciding to own a business. The results are shown in Table 2. On a ve-point Likert scale, with ve (5) being extremely important and one (1) being the least important, it was found that the two most important reasons were to increase income and to have job security. The mean score for to increase income is signicantly higher (at the 95 percent level) than the next closest motivation to have job security. Given the fact that Turkeys income is relatively low and employment is unpredictable, becoming a business owner is not only a way to increase income, but it can also reduce an entrepreneurs fear of losing a job. With respect to entrepreneurs in Turkey, these results support the work of Ozsoy, Oksoy, and Kozan (2001). In previous surveys of entrepreneurs in other developing nations (Chu, Benzing, and McGee 2007; Benzing, Chu, and Szabo 2005; Benzing, Chu, and Callanan 2005),



Table 2 Mean Score for Motivation of Turkish Entrepreneursa

Motivational Factors Mean Standard Deviation 1.48 1.40 1.50 0.92 1.29 1.48 1.12 1.48 1.46 1.20 1.27

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

To Be My Own Boss To Be Able to Use My Past Experience and Training To Prove I Can Do It To Increase My Income To Provide Jobs for Family Members For My Own Satisfaction and Growth So I Will Always Have Job Security To Build a Business to Pass On To Maintain My Personal Freedom To Be Closer to My Family To Have Fun

3.48 3.47 3.39 4.38 3.47 3.47 3.86 2.29 3.68 3.11 2.18

5 = extremely important, 4 = very important, 3 = mildly important, 2 = not very important, 1 = unimportant. the income and job security motivation were also prime motivators. To have job security was the second most important motivation, because, in many cases, small business owners start a business to create their own employment opportunity. Turkeys working age population has been growing at a faster rate than jobs have been created. Between 1980 and 2004, the working age population grew by 23 million, whereas only 6 million jobs were created (World Bank 2006). The ofcial unemployment rate in Turkey was 9.1 percent in 2006, but labor conditions are much weaker than this number illustrates, with nonagricultural unemployment at 12 percent (Turkish Statistical Institute 2006). One of the groups hit hardest by unemployment is educated young people. According to the World Bank (2006), there is a gap between the jobs being created and the skills and knowledge of educated young persons. Overall, youth unemployment was 17.5 percent in 2006, while youth unemployment in urban areas was even higher at 22.2 percent (Turkish Statistical Institute 2007). Turkey introduced an unemployment insurance plan in 1999, with the rst benets paid in 2002. Unfortunately, due to strict eligibility requirements and the extensive informality of the labor market, the payment of such benets has been severely limited. According to the World Bank (2006), only 4 percent of unemployed workers are actually covered by Turkeys unemployment compensation program. As a result, most unemployed persons rely on savings and family resources to survive. As a result of the jobs decit and uncertainty in the labor market, job security is one of the most important forces driving business creation. Maintaining personal freedom and independence was cited as the third most important reason for business ownership among respondents. It has been argued that being a predominantly Muslim society, Turkey could not produce the spirit of capitalism or Protestant work ethic characteristics (Weber 1985). However, individual initiative cor-



responds to the freedom and independence that entrepreneurs in Turkey enjoy through business ownership. This result suggests that the Islamic entrepreneurial class in Turkey is rising and bridging the cultural gap between the West and the Islamic world (Arslan 2000). Research on Turkish entrepreneurs by Ozsoy, Oksoy, and Kozan (2001) also supports this surveys results by suggesting that the desire for exibility and work freedom are driving forces behind the motive to go into business. As Adas (2006) pointed out, the Islamic entrepreneurial class is relatively new in Turkey in that it really developed in the 1980s and 1990s. Operating in all areas of the economy, many of the businesses owned by this entrepreneurial class are family-owned small and medium-scale companies in addition to some holding companies (Adas 2006). Many associations have been developed in order to promote and support Islamic entrepreneurs in a secular business environment. Some of these business associations, like MUSIAD (Mustakil Sanayici ve Is Adamlari Dernegi, or Independent Industrialist and Businessman Association) seek to contribute to [the personal] development [of businesspersons] in becoming more positive and productive human beings [and] to contribute to the emergence of a society of people who have inner depth . . . and have a notion of solidarity (http://www.musiad.org.tr). MUSIADs objectives include the personal, institutional, sectoral, cultural, and social development of its members. These groups contribute to the independence of Turkish entrepreneurs while supporting their personal and human development. As shown in Table 3, a factor analysis of the motivations led to four factors: a security factor, an income factor, an independence factor, and an intrinsic factor. The best t factor analysis accounts for 70.8 percent of the variance and was obtained by using principal

component factor analysis with an equamax rotation. As recommended by Hair et al. (2006), all factor loadings are greater than 0.40, and all communalities exceed 0.50. The rst factor is referred to as a security factor and contains motives 3, 5, 7, and 10. These variables include obtaining job security, providing jobs for family, and being closer to family, and explain 25.5 percent of the variability. Motive 3, to prove I can do it, also loads on this variable, indicating that it is correlated with the other variables on the same factor. Although motive 3 appears related to independence, it loads on a factor with three other motives, indicating that entrepreneurs who rated variables 5, 7, and 10 highly were also more likely to rate motive 3 highly. These motives may be correlated, because proving to others that you can create a successful business simultaneously means you have created a job for yourself and others. Succeeding in such an endeavor provides security, and, at the same time, pride in its success. The second factor can be called an income factor, and consists of motives 4 and 8, which are to increase income and to build a business to pass on. This factor accounts for 17.6 percent of the variability. Entrepreneurs appear to believe that the regular cash ow and the creation of an inheritable asset (i.e., wealth) are related aspects of a business. A business is a nancial asset that provides a ow of income to the current owner and may well provide another ow of income to the owners successors. The third factor, referred to as the independence factor, contains motives 1 and 2, which are to be my own boss and to be able to use my past experience and training. The fourth factor, referred to as the intrinsic factor, consists of motives 6, 9, and 11, which are to maintain personal freedom, for my own satisfaction and growth, and to have fun.



Table 3 Principal Component Factor Analysis (Equamax Rotation) Factor Loadings (Sorted) and Communalities for Motivation Variables
Motivation 10. To Be Closer to Family 7. For Job Security 3. To Prove I Can Do It 5. To provide Jobs for My Family 4. To Increase My Income 8. To Build a Business to Pass On 2. To Be Able to Use Past Experience and Training 1. To Be My Own Boss 9. To Maintain Personal Freedom 6. For My Own Satisfaction and Growth 11. To Have Fun Variance Percentage of Variance Cronbachs Alpha Factor 1 0.853 0.835 0.706 0.684 -0.076 0.031 Factor 2 0.245 -0.056 -0.038 -0.151 0.892 0.812 -0.005 Factor 3 0.077 0.282 0.510 0.084 -0.022 0.154 Factor 4 -0.066 0.038 0.102 0.379 0.029 0.239 -0.026 Communality 0.797 0.782 0.770 0.641 0.803 0.742




0.490 -0.103 0.136

0.314 0.027 0.411

0.576 0.120 -0.233 -0.316 1.579 0.144 0.539

-0.039 0.841 0.564

0.672 0.734 0.560

0.360 2.805 0.255 0.838

0.357 1.939 0.176 0.731

0.471 1.468 0.133 0.545

0.578 7.789 0.708

The variance row of numbers in Table 3 represents the eigenvalues and indicates the relative importance of a factor in explaining the variance associated with the variables. Although factor 1 has the highest explanatory value (25.5 percent), that does not mean that factor 1 is the most important motivation factor to the entrepreneurs. According to the summated scale scores shown in Table 4, the highest mean score (4.131) was for

factor 2, the income factor. This indicates that entrepreneurs in Turkey are most motivated to create a business by the prospects of increasing income and creating an inheritable asset. The least important motivation factor (signicance level 95 percent) is factor 4, the intrinsic factor, which relates to self-satisfaction, freedom, and enjoyment. Two of the factors obtained in this study align with Robichaud, McGraw,



Table 4 Mean Scores of Turkish Entrepreneurs by Factor Related to Motivationa

Summated Scales Mean Score Security Income Independence Intrinsic 3.521 4.131 3.470 2.955 Standard Deviation 1.187 0.905 1.195 0.960

Scale Scale Scale Scale


1Factor 2Factor 3Factor 4Factor

1: 2: 3: 4:

Summated scales were calculated as average score across items contained in that factor. Scale 1 is the average of the scores on motivations 3, 5, 7, and 10, scale 2 is the average of the scores on motivations 4 and 8, scale 3 is the average of the scores on motivations 1 and 2, and scale 4 is the average of the scores on motivations 6, 9, and 11.

and Roger (2001). The security factor obtained in this study has two motivations in common with Robichaud et al.s security/well-being of the family factor: to be closer to the family and provide jobs (a secure future) for family members. The extrinsic motivations factor obtained by Robichaud most closely corresponds to the income factor obtained in this study, but the legacy motivation appears on a different factor in this study and Robichaud et al.s study. The desire to build a business to pass on appears on the income factor in this study, but appears in the security/well-being of the family factor in Robichauds study. Inclusion of this variable on either factor can be logically explained, but further study must be undertaken to understand what underlies the inheritance motivation and to which factor it is most closely related. The results of this studys factor analysis may be inuenced by the preponderance of males (91 percent) in the sample. Based on research by Ufuk and Ozgen (2001a, 2001b), one could hypothesize that a sample with greater numbers of female entrepreneurs would have

weighed the independence and security factors more heavily.

Success Variables On a ve-point Likert scale, with ve (5) being extremely important and one (1) being least important, entrepreneurs in Turkey rated their reputation for honesty as the most important success variable. As shown in Table 5, friendliness and charisma was ranked second among the elements necessary for building a thriving enterprise. Social skills and providing good customer service were also cited by respondents as important. In two similar surveys conducted by Benzing, Chu, and Callanan (2005), and Benzing, Chu, and Bove (2005), entrepreneurs in Vietnam and Romania also rated honesty, friendliness, and good customer service as the three most important success factors. Pakistani entrepreneurs placed customer service in their top three success factors (Coy, Shipley, and Rao 2007). These results suggest a certain commonality among entrepreneurs in the rating of perceived success variables despite differences in culture and religion.



Table 5 Mean Score for Variables Contributing to Business Successa

Success Factors Mean Standard Deviation 1.17 0.83 1.53 1.34 1.33 1.49 1.42 1.31 1.30 1.17 1.23 1.68 1.12 1.04 0.94 1.38 0.67

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

Good Management Skills Charisma: Friendliness Satisfactory Government Support Appropriate Training Access to Capital Previous Business Experience Support of Family and Friends Marketing/Sales Promotion Good Product at Competitive Price Good Customer Service Hard Work Position in Society Maintenance of Accurate Records Ability to Manage Personnel Social Skills Political Involvement Reputation for Honesty

3.87 4.42 2.68 3.50 3.50 3.29 3.53 3.04 3.68 4.21 3.95 3.36 3.29 3.99 4.39 3.35 4.82

a 5 = extremely important, 4 = very important, 3 = mildly important, 2 = not very important, 1 = unimportant.

Honesty may be cited as the most important ingredient of a successful business, in part because Islamic values play an important role in conducting business (Arslan 2000). Entrepreneurs are expected to adhere to Islamic values such as honesty, respect, and obedience to elders. As discussed by Zapalska, Brozik, and Shuklian (2005), Muslim entrepreneurs should avoid dishonesty, fraud, deception, and coercive practices, as well as hoarding, speculation, and collusion among producers. Graaand, Mazereeuw, and Yahia (2006) discussed several principles of Islam that should be incorporated into all business practices. These principles include the right to own property, freedom, justice, honesty, sincerity, truthfulness, exactness in weight

and measurement, leniency, and servitude. Furthermore, Islam prohibits cheating and lying. Graaand, Mazereeuw, and Yahia (2006) also remind entrepreneurs that Islam requires equal payments for equal work, thus forbidding discrimination based on gender and other personal characteristics. Entrepreneurs in Turkey gave the least importance to satisfactory government support. This could indicate that entrepreneurs in Turkey understand and accept the vagaries of the market economy without relying on governmental protection or subsidies for success. However, this score could also indicate that entrepreneurs harbor a fear that greater governmental assistance could be a precursor to greater governmental



interference. Sometimes, the helping hand of government can become more of a burden than a help to the small business owner. Pakistani entrepreneurs also ranked government programs as relatively unimportant to their success (Coy, Shipley, and Rao 2007). As shown in Table 6, the factor analysis indicates that 15 of the 17 success variables could be grouped into six factors. All the variables in this model have a factor loading greater than 0.50, and all communalities exceed 0.65. The total percentage of variance (trace) explained by the factor solution is 75.7 percent. The factor analysis process selects the variables that should be grouped together on a factor. The factors are not necessarily easily named or explained, because sometimes responses on a success item are highly correlated with a seemingly unrelated success item. However, given the high factor loadings and the fact that both varimax and equamax rotations resulted in the same items being associated on the same factors, this indicates that the results of this factor analysis are robust. The rst factor can be called characteristics related to the individual, and includes success variables 6, 7, and 11. This factor includes previous business experience, support of family and friends, and hard work, and explains 14.7 percent of the variability. The second factor relates to social connections and includes success variables 10, 12, and 16. This factor includes position in society, political involvement, and good customer service. Factor 3 can be referred to as a competition factor because it consists of success variables 8 and 9, which are having a good product at a competitive price and marketing/ sales promotion. Factor 4 can be called reputation/social skills and includes two variableshaving a reputation for honesty and having social skills. Factor ve relates to general management skills and having an ability to manage person-

nel. This factor might best be called management skills. And, nally, factor 6 is called a market support factor because it consists of success items 3, 4, and 5. The three success variables in factor 6 are satisfactory government support, appropriate training, and access to capital. Appropriate training and access to capital may be linked to satisfactory government support because they are items that the government can nancially support. The fact that training has been relatively unavailable is partly a product of government policy. All three items are necessary for the market growth of a small business. Success item 2, friendliness, and success item 13, the ability to maintain accurate records, did not combine with any other items on a factor. As a result, those two success variables were not included in the nal factor analysis. This does not mean that they are unimportant to success. As discussed earlier, the entrepreneurs friendliness is actually seen as the second most important success variable. Table 7 shows the summated scale score for each factor. The summated scale is the average score of the items in that factor. The mean score of 4.607 for the reputation/social skills factor is signicantly higher (99 percent level) than any other success factor. This indicates that among the six reported factors, Turkish entrepreneurs believe their success is most closely related to their reputation for honesty and their social skills. Interestingly, factor 6, which includes government support, appropriate training, and access to capital, is viewed as the least important factor among the six factors.

Problems Facing Entrepreneurs As shown by the mean scores in Table 8, the four most critical problems faced by Turkish entrepreneurs are (1) a confusing and complex tax structure; (2) the inability to attract and retain good employees; (3) the inability to maintain



Table 6 Principal Component Factor Analysis (Equamax Rotation) Factor Loadings (Sorted) and Communalities for Perceived Success Variables
Factor 1 0.812 0.791 0.625 0.565 0.130 0.028 0.007 0.057 0.184 -0.077 0.102 0.055 0.172 0.229 0.218 2.199 0.147 0.759 0.078 0.163 0.400 0.689 0.675 0.669 0.053 0.170 -0.006 0.127 0.194 -0.099 -0.025 0.540 0.040 1.959 0.131 0.620 -0.187 -0.074 0.240 -0.003 -0.413 -0.022 -0.855 -0.822 -0.147 0.022 -0.046 -0.159 0.005 -0.216 -0.410 1.940 0.129 0.755 0.088 0.100 0.039 -0.070 0.109 0.339 -0.009 0.178 0.884 0.848 0.293 0.042 0.177 -0.080 -0.009 1.808 0.129 0.734 0.013 0.181 0.317 -0.118 -0.016 0.272 0.065 0.152 0.045 0.208 0.789 0.774 0.085 0.205 0.419 1.740 0.116 0.627 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6 0.246 0.219 0.071 0.038 -0.152 0.330 0.036 0.164 -0.026 0.186 -0.021 0.305 0.830 0.595 0.510 1.707 0.114 0.676 Communality 0.769 0.749 0.715 0.814 0.678 0.746 0.739 0.789 0.839 0.818 0.758 0.733 0.758 0.792 0.652 11.352 0.757

Success Variables


6. Previous Business Experience 7. Support of Family and Friends 11. Hard Work 12. Position in Society 10. Good Customer Service 16. Political Involvement 9. Good Product/Competitive Price 8. Marketing Factors 17. Reputation for Honesty 15. Social Skills 14. Ability to Manage Personnel 1. Good General Management Skills 4. Appropriate Training 3. Satisfactory Government Support 5. Access to Capital Variance Percentage of Variance Cronbachs Alpha


Table 7 Mean Scores of Turkish Entrepreneurs by Factor Related to Perceived Success Variablesa
Summated Scales Mean Score Characteristics Related to the Individual Social Connections Competition Issues Reputation/Social Skills Management Skills Market Support 3.591 3.642 3.350 4.607 3.925 3.232 Standard Deviation 1.139 1.078 1.173 0.724 0.951 1.094

Scale Scale Scale Scale Scale Scale


1Factor 2Factor 3Factor 4Factor 5Factor 6Factor

1: 2: 3: 4: 5: 6:

Summated scales were calculated as average score across items contained in that factor. Scale 1 is the average of the scores on variables 6, 7, and 11; scale 2 is the average of the scores on variables 10, 12, and 16; scale 3 is the average of the scores on variables 8 and 9; scale 4 is the average of the scores on variables 15 and 17; scale 5 is the average of the scores on variables 1 and 14; and scale 6 is the average of the scores on variables 3, 4, and 5.

Table 8 Problems Faced by Small Businessesa

Problems Mean Standard Deviation 1.43 1.37 1.43 1.38 1.28 1.49 1.40 1.55 1.27 1.25 1.28 1.36 1.29 1.66 1.53

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.


Unreliable and Undependable Employees Too Much Competition Unable to Obtain Short-Term Financial Capital Unable to Obtain Long-Term Financial Capital Too Much Government Regulation Limited Parking Unsafe Location Weak Economy Lack of Management Training Lack of Marketing Training Inability to Maintain Accurate Accounting Records Complex/Confusing Tax Structure Complicated Business Registration Process Poor Roads/Transportation Electricity Problems

3.28 2.88 2.30 2.47 2.54 2.21 2.13 3.19 2.60 2.81 3.24 3.53 2.63 3.11 2.84

5 = very serious problem, 4 = serious problem, 3 = problem, 2 = minor problem, 1 = not a problem.



accurate accounting records; and (4) a weak economy. Entrepreneurs in Turkey do not appear to be as constrained by nancial capital as entrepreneurs in other countries, such as Ghana (Chu, Benzing, and McGee 2007), Romania (Benzing, Chu, and Bove 2005) and Vietnam (Benzing, Chu, and Callanan 2005). In a study of Turkish women entrepreneurs, Ufuk and Ozgen (2001b) found that the heaviest burden imposed on entrepreneurs was debt and tax payments. The results of the European Commission (2007b) survey of SMEs in 30 European countries partially support the results of this survey. The European Commission survey found that the four most important barriers to innovation were lack of nancing, scarcity of skilled labor, a lack of market demand, and the high cost of human resources. Half of the European SME managers who were interviewed said they had recruitment problems. In addition, SME owners in Europe were frustrated by a lack of market demand, which is sometimes attributable to a weak economy. The entrepreneurs in the European sample were very concerned about government regulation with 44 percent of owners indicating that they were operating in an overregulated environment. In this study, entrepreneurs in Ankara, Turkey do not believe government regulation is a very serious problem, nor do they report a serious inability to obtain nancial capital. The four most critical problems to Turkish entrepreneurs will be discussed in the following subsections. Confusing and Complex Tax Structure. According to the World Bank (2007b), Turkeys overall business tax rate is not excessive compared with the region or the OECD. The total tax rate (as a percentage of prot) facing a medium-size company in Turkey is 45.1 percent. This compares favorably with the region (50.8 percent) and the OECD (46.2 percent).

However, when compared with other economies, the comparison is not as favorable. For instance, in Singapore, the total tax rate facing a medium-size business is 23.3 percent, and in the United Kingdom, it is 35.7 percent. Many would argue that businesses in Turkey and the OECD pay too high an overall tax rate, which creates a drag on the economy. Excessively high payroll taxes lead to an increase in informal hiring arrangements and slower company growth. In addition, by increasing noncompliance, higher tax rates undermine the tax system and reduce government receipts. The complexity of a tax system is independent of the tax rate, and according to this survey, is a serious problem in Turkey. The total hours a medium-sized company spends preparing, ling, and paying taxes in one year gives a good indication of the administrative burden created by a tax system. According to the World Banks (2007b) Doing Business report, an average medium-sized business in Turkey spends 223 hours per year paying its taxes. In contrast, similar companies in OECD countries spend 183.3 hours paying taxes. When compared with other business-friendly economies, the contrast is even more apparent. In Hong Kong and Singapore, a medium-sized company only spends 80 hours and 49 hours, respectively, in administering its tax payments. Highincome countries tend to have both lower tax rates and less complex tax systems. This decreases the cost burden associated with taxes and increases compliance. The Inability to Attract and Retain Good Employees. Although the inability to obtain good employees is a challenge for entrepreneurs in every country (European Commission 2007b; Benzing, Chu, and Bove 2005; Benzing, Chu, and Callanan 2005), the problem is more acute in Turkey because of the expense and burden related to hiring and ring



employees. According to the OECD (2006), Turkey has one of the most restrictive labor codes in the OECD. First, Turkeys minimum wage is too high, as shown by Turkeys ratio of minimum wage to the average value added per worker. Whereas this ratio is 0.57 for Turkey, it is 0.14 and 0.27 for France and Romania, respectively (World Bank 2007b). Second, exorbitant ring costs (severance pay) increase the risk of hiring incompetent employees. To re an employee in Turkey costs 95 weeks of wages, whereas the cost in an OECD country averages 25.7 weeks of wages (World Bank 2007b). Third, Turkish labor law places restrictions on night work, on weekly holiday work, and hours worked. As a result of these labor cost burdens, Turkish entrepreneurs must hire only the most competent, productive workers to survive. The pool of these workers is limitedas it is in every country. Inability to Maintain Accurate Accounting Records. Entrepreneurs in this survey also show a concern over their inability to maintain good accounting records. Only 28 percent of the sample had graduated college. As a result, the majority of the entrepreneurs in this sample are probably lacking in accounting and marketing training. This may be a concern across Turkey due to the insufcient availability of business programs in the higher education system. Although Turkey has 76 institutions of higher learning, only 33 percent of those persons between 1821 participate in higher education. Of the students enrolled in higher education, 45 percent are enrolled in the applied social sciences, of which business management is one possible major (T.C. Yksekgretim Kurulu 2007). The results of this study imply that there might be great interest in two-year or nondegree programs in business. Because access to universities is limited, Turkeys two-year schools might be better suited to provide

accounting and business coursework. A better understanding of accounting would help entrepreneurs better measure their protability and how to improve it. Weak Economy. Finally, a weak economy was reported as another critical obstacle preventing Turkish small business owners from achieving their goals. Cetindamar (2005) found that many Turkish entrepreneurs experienced difculties due to uncertainty in the economic and political environment. A study of Kenya and Ghana (Chu, Benzing, and McGee 2007) found that entrepreneurs ranked a weak economy as the most serious problem experienced by small business owners. Among entrepreneurs in Romania (Benzing, Chu, and Bove 2005) a weak economy was the third most serious problem. In a similar survey being done in Bulgaria, a weak economy is also emerging as a serious problem. Entrepreneurs in Vietnam and India did not consider this a serious problem (Benzing and Chu 2005; Benzing, Chu, and Callanan 2005). A weak economy is a problem to entrepreneurs because it leads to a decline in consumption spending and business investment. That decline in demand decreases the revenues and protability of all companies. Thirteen of the 15 problem variables loaded onto ve factors. The results of a principal component factor analysis with an equamax rotation are reported in Table 9. Problem 4: unable to obtain long-term capital and problem 8: weak economy did not load on any factor, and so they were omitted from the nal factor model. The best t model accounts for 73.1 percent of the variability. All factor loadings are greater than 0.50, and all communalities are greater than 0.60. The rst factor includes problems 1, 2, and 3 and accounts for 15.9 percent of the variability. This factor includes problem 1, which relates to unreliable and undependable employees, problem 2: too much competition, and problem



Table 9 Principal Component Factor Analysis (Equamax Rotation) Factor Loadings (Sorted) and Communalities for Problem Variables
Factor 1 0.831 0.771 0.664 0.234 0.147 0.171 0.116 0.059 -0.093 0.248 0.379 0.093 0.018 2.070 0.159 0.750 -0.061 -0.262 -0.430 -0.849 -0.671 -0.620 -0.030 -0.247 -0.208 -0.310 0.136 -0.032 0.000 2.032 0.156 0.754 -0.126 -0.120 0.037 -0.176 -0.379 0.062 -0.865 -0.808 -0.299 0.184 -0.296 -0.058 -0.247 1.887 0.145 0.754 -0.115 -0.154 0.004 -0.106 -0.208 -0.452 -0.048 -0.086 -0.787 -0.739 -0.561 0.116 -0.259 1.866 0.144 0.663 Factor 2 Factor 3 Factor 4 Factor 5 -0.000 0.072 0.275 0.071 0.033 -0.115 0.159 0.169 0.006 0.079 0.324 0.898 0.763 1.654 0.127 0.661 Communality 0.723 0.706 0.703 0.823 0.659 0.635 0.791 0.753 0.760 0.743 0.669 0.833 0.710 9.508 0.731

Problem Factors


1. Unreliable/Undependable Employees 2. Too Much Competition 3. Obtaining Short-Term Capital 10. Lack of Marketing Training 9. Lack of Management Training 11. Inability to Maintain Accounting Records 6. Limited Parking 7. Unsafe Location 13. Business Registration Process 12. Complex/Confusing Tax Structure 5. Too Much Government Regulation 15. Electricity Problems 14. Poor Roads/Transportation Variance Percentage of Variance Cronbachs Alpha


Table 10 Mean Scores of Turkish Entrepreneurs by Factor Related to Problema

Summated Scales Mean Score Market Problems Lack of Business Training Location Problems Governmental Problems Infrastructure Problems 2.819 2.899 2.178 2.900 2.966 Standard Deviation 1.153 1.040 1.294 1.011 1.377

Scale Scale Scale Scale Scale


1Factor 2Factor 3Factor 4Factor 5Factor

1: 2: 3: 4: 5:

Summated scales were calculated as average score across items contained in that factor. Scale 1 is the average of the scores on problems 1, 2, and 3; scale 2 is the average of the scores on problems 9, 10, and 11; scale 3 is the average of the scores on problems 6 and 7; scale 4 is the average of the scores on problems 5, 12, and 13; and scale 5 is the average of the scores on problems 14 and 15.

3: unable to obtain short-term capital. The rst factor has been named market problems as it relates to three important markets: the labor market, the product market, and the nancial market. The second factor accounts for 15.6 percent of the variability and includes problems 9, 10, and 11, and has been named lack of business training. The three problems in this factor relate to the lack of management, marketing, and accounting training. The third factor is called the location factor, and includes limited parking and an unsafe location. The fourth factor is called governmental bureaucracy, and is related to the business environment created by the government. The three problems in this factor are the business registration process, complex/confusing tax structure, and too much government regulation. The fth factor deals with infrastructure problems and includes electricity problems and poor roads/transportation. As shown by the factor analysis results in Table 10, the summated scores on these factors indicate that Turkish entrepreneurs are least concerned about loca-

tional issues related to parking and safety. Based on the results of a Mann Whitney test of the differences among the factor scores, the summated scale for factor 3 was signicantly lower than every other factor. Apparently, problems of crime and parking are not rated very seriously by entrepreneurs in Ankara. Locational issues might be more relevant for small business owners in Istanbul due to the overcrowding and trafc problems there. Because there were no signicant differences among the summated scores on the other four factors, the itemby-item analysis of problems is more relevant when determining how to improve the environment for SME business owners in Turkey.

Discussion and Policy Recommendations

Although the benets of entrepreneurship to economic development are becoming clearer (Carree and Thurik 2003; Audretsch and Thurik 2000; Acs, Carlsson, and Karlsson 1999; Reynolds 1999), Turkish entrepreneurship must be more actively supported by the Turkish



government. According to Kozan, Oksoy, and Ozsoy (2006), Turkish small businesses suffer from a lack of nancial support, a high burden of taxes and regulations, and too few government programs. This survey supports the perception that the tax system is viewed as a serious problem, with 57 percent rating its complexity as a very serious or serious problem. However, this survey does not support the conclusion that a lack of nancial support and excessive government regulation are serious problems for Turkish entrepreneurs. Only 26 percent saw the inability to secure shortterm nancial capital as a very serious or serious problem, and only 24 percent rated government regulation as a very serious or serious problem. The European Commissions 2007 survey of SMEs in Europe supports this studys conclusion that government regulation in Turkey is not a serious problem. According to their results only, 25 percent of Turkish entrepreneurs believe that government regulations are too strict (European Commission 2007b). In addition, entrepreneurs in this survey did not appear to believe governmental programs are a signicant ingredient for success. Forty-nine percent of the respondents to this survey thought that governmental programs were either not very important or unimportant. Although governmental programs were not viewed as a signicant ingredient for success, many of the problems facing business owners could be reduced with changes to the governments tax policies, educational system, and labor laws. Recommendations for each of the four most serious problems are addressed in the next four subsections.

Complexity of the Tax System The most serious problem facing entrepreneurs is Turkeys confusing and complex tax system. Turkey has recognized this problem in its Ninth Development Plan. According to the Plan,

. . . due to the complexity of the tax system and the large number of taxes, the cost of tax transactions remains high (Republic of Turkey 2007, p. 83). Turkey has already made some improvements in its tax system. In its Doing Business 2008, the World Bank (2007b) indicates that Turkey decreased its total tax rate on businesses from 53 percent in 2007 to 45.1 percent in 2008 while also decreasing the time spent preparing, ling, and paying taxes from 254 to 223 hours per year. (The corporate income tax rate itself was recently decreased from 30 percent to 20 percent.) This improved Turkeys ranking on paying taxes from 85th place to 54th place out of 178 nations, making Turkey the second biggest reformer in the world after Bulgaria (World Bank 2007b). However, more improvement can be made. As discussed earlier, the number of hours a business spends dealing with tax issues varies widely, and can be as low as Singapores 49 hours per year. In 2006, Turkey began a process of improving the collection, service and administration of the tax system. For instance, Turkey improved the technological infrastructure of the Revenue Administration and began an e-Tax Department automation project to allow for electronic ling. In addition, a database (VERIA) was created to maintain information on the public and private sectors (Republic of Turkey 2007). Finally, Turkey has moved toward one citizen identication number for both tax identication and social security identication. The previous two number systems were causing a breakdown in the ability to control and audit businesses and individuals. One of the goals of the Ninth Development Plan is to enact a new income tax law and tax procedure law in 2007. The objective reads: Signicant contributions will be made to combat the informal economy through a simpler and more effective tax system (Republic of



Turkey 2007, p. 90). Turkey needs to work toward this goal with urgency to insure a broadening of the tax base, lower tax rates, and greater compliance. By further automating and simplifying the tax system, Turkey will reduce the burden on small businesses, reduce the size of the unregistered economy, and promote macroeconomic stability.

Expanding and Improving the Quality of the Workforce According to this studys results, SME entrepreneurs in Turkey believe that the inability to attract and retain reliable employees is their second most serious problem. As described earlier, this may relate to the excessively high level of payroll taxes and an overly restrictive labor code. It is difcult for employers in Turkey to nd workers who will contribute a productive value in excess of their wage and the payroll taxes related to their employment. As a result, companies are unable to grow, and they remain in the informal or unregistered sector to avoid labor code compliance. Many SMEs nd ways to avoid labor regulations and taxes by underreporting wages, ring workers before they become eligible for severance, and using fewer female employees to avoid paid maternity leave requirements. The World Bank (2006) indicates that approximately one-third of all urban workers are employed in the informal sector, which means they are not registered with the social security system, do not receive health insurance and unemployment insurance, and rarely receive the full severance pay required under the labor code. Turkey itself estimates that over 50 percent of the economy is unregistered, which amounts to a loss of $80 billion in tax revenues per year (Todays Zaman 2007c). In an effort to protect workers, the overly restrictive labor code has instead led to their lack of protection as more are employed in the informal sector.

In an effort to create more jobs and provide incentives for companies to register, the World Bank (2006), and OECD (2006) have recommended that Turkey reduce severance pay and other labor restrictions while also reducing employer premiums for unemployment insurance and social security. Although the 2003 Labour Code revision allowed for greater usage of temporary employees, Turkey still remains the OECD country with the second most restrictive employment laws only after Portugal. Streamlining the restrictions related to employment and decreasing payroll taxes will increase the incentive for SME companies to hire workers and expand. When companies become part of the formal sector, it is easier to enforce labor laws and broaden the tax base, thereby increasing tax revenue. In the long run, greater economic and scal stability will lead to more job creation and growth. Another way that Turkey could increase its available labor pool is to implement programs that promote female participation in the labor market. In 2004, only 44 percent of the adult population was employed, which is one of the lowest employment participation rates in the world. This is largely the result of the low participation rate of women. According to the World Bank (2006), only 27 percent of Turkeys working age women work. A recent SEEurope.net paper (Bulgaria Economic Forum 2007) indicates that the female participation rate in urban areas in Turkey is even lower at 17 percent. The major reason that women do not work is cultural. Women are expected to marry and take care of the home, children, and aging parents. In rural areas of Turkey, 79 percent of the women work in unpaid agricultural employment. One of the goals of EU is to increase the employment rate to 60 percent among EU countries and those seeking membership (Bulgaria Economic Forum 2007).



An increase in the Turkeys labor pool must be accompanied by an improvement in the level of worker education and skills. According to the World Bank (2007c), Turkeys workforce is severely decient in its level of education and skills. As of 2005, only 40 percent of 20 to 24 year olds in Turkey had a secondary degree, which is half the rate for the 15 EU countries and far below the 85-percent target established by the EU (World Bank 2007c). Low secondary enrollments and graduation rates coupled with the relatively poor quality of secondary education constrain the ability of students to pursue tertiary education. As of 2004, Turkeys enrollment rate in tertiary education was 30 percent, and the graduation rate was 11 percent among 2534 year olds. This is the lowest rate among all OECD countries, where the average graduation rate is 31 percent (World Bank 2007c). Female rates of participation are far below the European Community (EC) norm as well. At the same time that university participation rates are low, the skills obtained at the universities are not adequate to meet the needs of potential employers. Turkish rms indicate that university graduates need better foreign language skills, computer skills, communications skills, and more practical experience (World Bank 2007c). The Ministry of Education in Turkey recently announced its education action plan for 20082012. This plan is based on the strategies and goals established in Turkeys Ninth Development Plan (Republic of Turkey 2007). To improve the information and communication skills of all students, the government plans to provide every school in Turkey with Internet access. To better match student skills to the demands of the job market, the government will expand vocational education, with special emphasis on professional and technical curricula. In addition, the government has plans to expand access to tertiary education by increasing student stipends for tuition and allowing

expansion of private vocational schools and universities (World Bank 2007c; Republic of Turkey 2007). Businesses themselves can inuence the labor pool and improve hiring outcomes by engaging in partnerships with universities and MYOs and using more sophisticated recruitment techniques. Small rms can benet from internship relationships because they allow rms to assess employee performance before making a permanent hire. In addition, internship pay is usually less. Businesses should contact universities and MYOs that have internship programs to see how they can get involved. In addition, small business owners need to have access to training in recruitment techniques. The use of newspaper advertising and employment agencies could increase the size and quality of applicant pools and improve hiring outcomes. Finally, with improved access to unemployment compensation, more job seekers will be listed as unemployed on the government rolls. The Turkish government could use that list to help match job openings to unemployed persons.

Providing Business Training Entrepreneurs in this survey were also concerned about their inability to maintain accounting records. Turkey has struggled to make higher education available to those graduating from the secondary education system, but more resources need to be channeled toward improving the availability of business education in Turkey. Like most countries, there is a shortage of students graduating with accounting degrees. Incentives must be created to increase the numbers of such graduating students. Expanding distance education, particularly in business disciplines, might partially address the training needs of small business owners. Turkeys universities have already tried to meet the growing demand for higher education by expanding distance education,



but more can be done (T.C. Yksekgretim Kurulu 2007). Partnering with other European and U.S. universities could help attract the needed resources. In addition, offering more part-time, nondegree business classes in facilities closer to entrepreneurs could improve availability. According to Ufuk and Ozgen (2001b), entrepreneurs in Turkey are willing to participate in training programs aimed at improving their business knowledge of communication methods, marketing, and accounting. Finally, the Ninth Development Plan plans to expand access to business information by establishing a single point information portal for information on different industries, Information and Communication Technologies (ICT) usage, and how to conduct business. The Ministry of Industry and Trade will most probably be in charge of such outreach and business training; however, the involvement of many overlapping government agencies, as suggested by the Plan, could lead to less effective implementation. One agency or group needs to coordinate this with the help of local educational institutions and business associations. Perhaps the information portal could be folded into the already existing one-stop-shops established in 2006. Although these onestop-shops were designed to coordinate start-ups and help with permits, they could be expanded to include the business training of entrepreneurs. Since maintaining accounting records seems to be a serious concern, these information portals should also provide subsidized training in accounting software like Quikbooks and aid in the purchase of accounting software and computers. It is important to make entrepreneurs aware of the availability of business training by appropriate outreach activities. The Turkish government should undertake a public relations campaign to ensure that small business owners are knowledgeable about training courses and other initiatives.

Economic Stability A weak, unstable economy is of concern to entrepreneurs in any country because it leads to reduced purchasing power and demand. According to the European Commission (2007b) 46 percent of SMEs in the EU-27 are concerned with customers purchasing power or limited demand. Luckily for small business owners in Turkey, the nations economy has been surprisingly strong and stable since its nancial crisis in 2001. The Turkish economy has averaged 7 percent real annual GDP growth during the last ve years, and has achieved single-digit ination and unemployment. (Turkey is expecting its 2007 real GDP growth rate to slow to 56 percent.) Fiscal and monetary restraint, political stability, and a probusiness government are largely responsible for this growth. Turkey is on track for continued growth and low ination, but there are still a number of challenges facing the Turkish government. To remain on the right economic track, Turkey must expedite reforms suggested by the IMF (2007). The IMF has urged Turkey to continue nancial sector privatization, to reform social security and bank supervision, and to control government spending (especially on pensions and health). Turkey has also been urged to maintain tight monetary and scal policy in an effort to continue GDP growth at 5 percent while moving toward its 4 percent target ination rate. Turkey is working with the IMF to keep its economy moving in the right direction. Turkey plans to continue reducing its ratio of public debt to national income and modernizing its tax administration (Republic of Turkey 2007). In addition, Turkey plans to implement social security and health care reforms sometime during 2008. Under the current proposal, the social security system will encourage all businesses through a system of incentives and penalties to pay employee insur-



ance premiums, which will increase social security receipts thereby reducing the social security decit. It will also place all workers under a single social security system, increase the minimum retirement age, and provide free health care for anyone under 18 years old (Todays Zaman 2007c). If Turkey continues its scal and monetary vigilance, combined with other IMF recommendations, it can insure the business community that economic growth and stability will continue. This economic strength will encourage SME growth and promote private sector health in Turkey.

Other more specialized associations like the Istanbul Textile and Raw Materials Exporters Association and the Shopping Malls and Retailers Association (AMPD) promote the interests of Turkish businesspersons by lobbying government ofcials and providing information on technological advances and foreign competition within a sector. Some of these industry associations support similar goals such as tax simplication and public debt reduction, but in some cases, their goals are in conict. While lobbying for their own interests, association members must learn to balance industry needs with the goals of other sectors and the country as a whole.

The Role of Business Associations Entrepreneurs in Turkey can inuence the private economy and their chances for business success by actively lobbying for probusiness legislation. Business associations provide the structure and support for successful lobbying activities. Business owners who wish to inuence Turkeys economic future should seek active membership in organizations such as the Chamber of Commerce, Chamber of Industry, MUSIAD, and/or a sector-based association. Because all companies must register with the Chamber of Commerce (Turkish Law no. 5174), Turkey already has one of the largest Chambers of Commerce in the world. The Istanbul Chamber of Commerce, which was voted the Best Chamber in Europe, has 300,000 members (http://www.ito.org.tr). These organizations also have the ability to provide business training through various outreach activities. The Istanbul Chamber established the ISTANBUL University of Commerce, whereas the Izmir Chamber established the Izmir Economics University to provide vocational and business training. Ankara has both a Chamber of Commerce and a Chamber of Industry, but they have yet to develop the clout that the Istanbul Chamber has.

Summary and Conclusion

This survey of 139 SME entrepreneurs in Ankara, Turkey indicates that like many other entrepreneurs around the world, the primary motivations for starting a business are to increase income and obtain job security. These income motivations dominate the internal reward motivations related to independence and intrinsic motives. If entrepreneurs are motivated primarily by income potential, then increasing the protability of business ownership should encourage more SME start-ups. Simplifying registration/licensing, revising the labor code, and reducing payroll taxes are a few ways to increase business income and encourage further SME development. According to this surveys results, entrepreneurs in Turkey believe the most important SME success items are a reputation for honesty, and friendliness, and charisma. Based on the factor analysis, a factor we call the reputation factor, which included honesty and social skills, was the most important success factor. Because these factors are largely under the entrepreneurs locus of control, it means that entrepreneurs in Turkey believe they can inuence their own business success. This attitude empowers



entrepreneurs and can lead to lower levels of stress. Based on the results of this study, entrepreneurs in Turkey view government support and political involvement as relatively unimportant to their success. Finally, the item analysis of problems indicates that entrepreneurs in Turkey are most concerned about the complex and confusing tax system, as well as their inability to attract and retain reliable employees. These concerns can be addressed with a decrease in payroll tax rates, a revision in the labor code to allow greater employment exibility, and an improved educational system. The third and fourth most serious problem items were the inability to maintain accurate accounting records and a weak economy. As discussed earlier, the government needs to actively support business education at the vocational and university level, especially accounting, in conjunction with increases in government and association-sponsored business training. With respect to economic policy, Turkey should stay the course on scal and monetary policy. However, Turkey must also expedite IMF recommendations to reform the nancial sector, reduce the public debt, and modify the social security system. To date, some positive steps have been taken by the Turkish government to assist SME owners, such as the establishment of the KOSGEB, but more should be considered. Turkey can encourage the creation of more SMEs by making entrepreneurship a more protable employment opportunity. A simplication of the labor code, a decrease in payroll taxes, and greater technical assistance and business education, especially in the areas of accounting, market research, human resources management, and technological support, would help energize the Turkish economy. In so doing, a new class of well-trained, highly motivated entrepreneurs can create much-needed jobs and make Turkeys

economy more competitive with that of countries already in the EU.

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