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AFRICA: Threat for Italy, Opportunity for Turkey

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New Dynamics

May 17, 2017

 

Next July, Bektas Consulting will be celebrating its fifth year of operations in advising Italian enterprises about their operations in Turkey. Therefore, we thought it would be the right moment to take a look at and brainstorm on what has changed in these five years between the two Mediterranean countries in terms of business.

 

Since the establishment of our consulting business in 2012, both Italy and Turkey have gone through various political and economic challenges. As a result, the overall size of commercial exchange between these two countries ranged from above €20bn in 2012 to around €17bn in 2016. Italy, the world’s eighth largest and the EU’s third largest economy, has an export-oriented manufacturing industry. Even though Italy has aged three different governments in five years, none of them could completely succeed in overcoming the obstacles of a growing and productive economy following the 2008 crisis. Even today, the problems of the banking sector weigh on the economy, with unemployment rate still as high as 12%. Moreover, the government debt is rising to approach 140% of the GDP, productivity levels are low compared to other EU economies, such as Germany and France, and the consumption and investment levels are still flaccid. However, it would be unfair not to mention that in these five years, Italy was able to distance itself, though slightly, from the overall economic contraction and pessimist sentiment, having moved into the territory of reform, gradual growth and hope. The country’s major strengths still remain and in the last five years, the country has flexed its export muscles even further.

 

On one hand, small enterprises of Italy, the strength of the country’s economy, have turned their faces even more towards global markets to compensate for the struggling domestic sales. On the other, Turkey is a big market comprising 79 million people at close. This is the reason why a major part of the requests we received five years ago from Italian clients was for new business developments in Turkey. Italian companies, which had not yet developed operations in Turkey, needed to conquer this high-growth market, or the ones that were already operating in, had to explore it better. In fact, in 2012, less than a thousand Italian companies were operating locally in Turkey, whereas today, as of May 2017, the number has reached 1,400, with a growth rate of around 40% within a half-decade.

 

We are proud to have been a part of this growth, opening up the Turkish market to our clients. However, with time, our experience has revealed that Italians not only search for top-line growth, but also of ways to recover declining profits. Contracting operating margins puts pressure on small enterprises, which have to look for ways to survive. One way is to shift all or a part of the production to markets where they would not need to sacrifice their quality in favour of the lower costs. In fact, today, the character of the business that we run has somehow changed. Even though new business development is always an area we run enthusiastically, thanks to our vast business network in Turkey, today we find ourselves advising more clients on how to shift their production to Turkey for product categories in which the country has proved to be a high-quality and low-cost producer. The low-quality of Chinese manufacturing, depreciation of the Turkish Lira by 15% since October 2016, and proximity to the production centre are undoubtedly the defining factors that have helped some Italians pin Turkey as their choice.

 

Entering the Italian market, on the other hand, has historically been unattractive for the Turkish firms mainly due to Italy’s legendary bureaucracy, high effective tax rates, rigid labour markets, high costs of doing business and others. In the last decade, owing to the country’s growing economy, there has been important wealth accumulation in Turkey, and its entrepreneurs now have increasing ambitions in the international markets. Opportunities in Italy represent the door that may open up the whole European market for the Turks who have the wealth, experience, know-how and most importantly, the risk-taking attitude. At Bektas Consulting, today we are dealing more with requests from Turkish entrepreneurs who desire to establish a company or any form of operation, here, in Italy. The Turkish investments in Italy in the last five years have occurred in very different areas, from manufacturing to food, hospitality to footwear, chemicals to healthcare, and more is to come. In Italy, since 2008, we have been receiving big American, European, Chinese and Japanese investments that usually make the headlines. Even at a smaller scale, Turkish investments are present. The Turkish government’s Turquality Program, introduced in 2004, which provides operational and economic support to Turkish firms who grow their brands and operations in export markets, has also eased the decision-making process for these entrepreneurs.

 

Italy’s next elections are to be held in 2018 and the outcome is still hard to predict. Will the new government drive the country well through the challenges that they would face? We do not know. Will Turks go on monitoring the opportunities in Italy? We bet they will.

 

- Fusun

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