Term Paper: International Business Turkey

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Turkey Textiles

Turkey is a crossroads nation, straddling Europe and Asia. The country was once the hub of the Byzantine Roman and Ottoman Empires, and as such has longstanding cultural and trade links throughout the region. The modern nation is a secular Muslim republic of 80 million. The country has an economy that is predominantly free market in nature, but with a strong agricultural sector. The economy is in the trillion-dollar class and ranks 17th in the world, behind Indonesia and ahead of Iran. Turkey has its own currency, the Turkish lira, that floats freely and is currently worth 0.55 USD (Oanda, 2013). The country's main industries include textiles and food processing, and among agricultural products cotton is a major export commodity. The country has a diverse group of export partners (CIA World Factbook, 2013). This paper will focus on the textile industry in particular, discussing the conditions that affect Turkey as a place for international business in this industry. (write a little bit more tothe introduction)

Impact of Geography

Turkey benefits from its physical geography in multiple ways with respect to international trade. It occupies a strategic location at the crossroads of Europe and Asia, which gives it access to multiple markets. Turkey's top trading partners are Germany, Iraq, Russia, the UK, Italy, Iran and China, a diverse mix. No country is a dominant trade partner, something that is unusual for most nations. Turkey has water access to the Mediterranean, the Aegean and it controls access to the Black Sea, where goods can reach the large Russian and Ukrainian markets. Two of Turkey's largest trading partners -- Iraq and Iran, share land borders. Syria would normally represent more trade with Turkey but the statistics given are for 2012 and Syria was embroiled in its civil war then (and still is).

Turkey's textile industry benefits in multiple ways from geography as well. The country ranks 8th in world cotton production and is 3rd in organic cotton production. Cotton production is situated mainly in the western areas of the country, on the Aegean coast and near Istanbul. This area has a Mediterranean climate, with hot summers and mild winters. There is precipitation in the winter that allows for crops like cotton to grow, as there is little rain in the summer. A third center for cotton production is in the south near Gaziantep. This area is a little bit cooler, again with rain in the winter. The vast Anatolian plateau that makes up most of the country does not see much cotton production. Turkey was a major cotton producer at least as far back as the Ottoman Empire, if not earlier.

This access to raw ingredients fuels a massive textile business that is worth 6-7% of the nation's gross domestic product (GDP). Turkey is close to the EU and as a result is the 2nd-largest foreign supplier of textiles to the EU, and is the world's 6th-largest exporter of textiles (GDE, 2012). Turkey's position adjacent to Europe not only gives it access to that market, but also gives it an active design scene in Istanbul. The European influence found in the boutiques of Cihangir in particular, highlighting the ability of Turkey to compete at multiple ends of the market, including high end clothing design. This is unique among major textile producers, most of which do not have the same strong cosmopolitan design influences. This aspect of the industry is supported by the government and is considered a strong growth opportunity (Hurriyet, 2013).

Role of International Business

Though Turkey is a large domestic market, the textile industry has long been focused on export. Textile production as industry dates to the Ottoman period, and was at an advanced level. Rapid expansion of the industry occurred from 1923-1962, fuelled by extensive growth in cotton production. Government involvement in the industry began in the 1970s and some of the programs spurred significant growth. With high capacity and high quality, the Turkish textile industry has long sold to export markets. Europe and Russia provide high value export markets, while Middle Eastern add volume potential. The total export value of Turkish textiles is $5.4 billion USD (ITKIB, 2010). This trade provides different advantages to the different stakeholders. For the EU and other wealthy countries, Turkey represents excellent comparative advantage. The country is able to produce high quality textiles, but at a lower price than domestic European countries such as Greece. In the developing world, Turkey has an absolute competitive advantage in quality vs. domestic producers. For Turkey, textiles represent a strong industry that provides significant employment, especially in the country's agricultural regions. The textile industry represents an opportunity for Turkey to vertically integrate. The push from the Textile and Apparel Exporters' Associations (ITKIB) and the Ministry of the Economy to develop high end clothing design in Istanbul is an example of the government seeking to exploit the country's advantages in textiles to further vertically integrate this industry. The international markets like the European Union and Russia are crucial to the success of Turkey's textile industry going forward.

Political Environment

The political environment for the textile industry is favorable in Turkey. As noted, the Ministry of the Economy works with the industry (ITKIB) to promote the textile industry in international markets, and to develop vertical integration of the industry at home. Both entities publish reports promoting the industry, and both spend money to build markets for Turkish textiles. The economic importance of textiles is high in cotton-growing regions and is high for the country as a whole, so there is a high level of government support for the textile industry is Turkey. This facilitates growth, because the government is more willing to make textiles a central theme in trade discussions and free trade agreements. This gives Turkey an advantage over other countries for whom textiles are not as much of a priority. Turkey has, for example a customs union with the EU, something that gives it a high level of access to that market for its textile goods.

Effects on Local Areas

The textile industry in Turkey consists of around 7500 different companies, both SMEs and large companies. There are six centers of production for textiles: Istanbul, Izmir, Denizli, Bursa, Kahramanmara? And Gaziantep (ITKIB, 2010). Thus, Marmara (Istanbul, Bursa) and Ege (Izmir, Denizli) are the most important regions for the textile industry in the country, as well as the Cukurova region in the south of the country (Saba, 2013). For these regions, the industry provides tens of thousands of jobs and hundreds of millions of dollars in revenue. The industry would be substantially smaller without international trade, so the trade is important to the development of these regions. The Turkish government is heavily involved in the industry providing subsidies for farmers as part of its commitment to agriculture businesses and rural development (Osakwe, 2009). That said, Turkish cotton production is declining, including the acres under cultivation (Sirtioglu, 2013).

Role of Economic Systems

Turkey operates a free market economy, albeit one with significant government intervention. The textile industry in the early years of the republic was run on the basis of virtual monopoly under Sumerbank (Saba, 2013). Over time, however, producers gained independence and power, to the point where now the industry is heavily diffuse and is subject to relatively free international trade. The government still plays an active role in finding market opportunities for Turkish textile firms, and in fostering the development of the industry, but for the most part it is privately run. This has spurred significant investment in the sector over the years. As a result, the sector has been strong enough to thrive after the expiry of the global textile quota system in 2004 as per WTO guidelines (GDE, 2012).

International Consumer Markets

Turkey sells textiles to a diverse group of countries. The top nine export markets for Turkish textiles are all in the EU, with the tenth-largest market being Russia. Iraq and the U.S.A. are other important non-EU markets. The most significant growth market is Saudi Arabia, which saw 96% growth in 2011 (GDE, 2012). These markets have diverse needs, and Turkey's textile industry is able to meet them all. The highly-diversified production capabilities of Turkey allow it to compete at different price points in the market, as well as with different products. This allows Turkey to sell to so many different countries and is the hallmark of a well-developed industry. Another factor is that Turkey's government promotes its cotton exports, despite the high domestic usage. This is not the case in India, where cotton exports were recently banned, something that opens up more markets for Turkey and increases the global price of cotton (Hurriyet, 2012).

Turkey's geography again plays an important role in international marketing. The country's historic outlook has been characterized as by its crossroads position. Marketing internationally in the textile industry requires understanding different social factors, and Turkey has for 2000 years been capable of such an outlook. Turkish manufacturers understand the needs of European, Arab, Israeli, Russian and Iranian customers… [END OF PREVIEW]

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