Screening your operations in Turkey by a consultant
‘Companies need consultants, because otherwise they’re merely breathing their own exhaust’ was a tweet* I read yesterday. Sounds intriguing, and it recapitulates well the experience we also had in these years.
A couple of weeks ago, I had dinner with the manager of a mid-sized European firm. Seven years ago, they had invested in Turkey, creating a partnership where they hold the majority. And today, they are on the verge of a decision: whether to close down the loss-making Turkish business unit, or to unlock the potential offered by Turkey by acquiring a bigger-in-size local competitor—liquidating the unsuccessful Turkish minority partner in either case. These are two alternatives that one finds surprisingly very different from the other. Knowing well what the Turkish market potentially offers them, the European firm is reluctant to divest; but they are also aware they are not moving in the right direction with the current management. And, for the last couple of years, they have been waiting for the right moment when they will be able to decide. Yet, I have not seen—neither in management text books nor in real life—that merely hoping that things will get better will help improve business. Implementing the same methodology and expecting different results also seems unfruitful.
Great entrepreneurs usually have very strong instincts when they evaluate investments, and they like to move rapidly. Once an investment decision is taken, its implementation depends on their team, and it is at this ‘implementation’ point that problems arise, deadlocks occur, failures appear. However, an entrepreneur cannot risk taking an investment decision and not implementing it well.
When I hold meetings with prospective Italian clients that already have operations in Turkey, I ask them three questions: 1) Are they growing? (growth has to be one of the top priorities for any company), 2) Are they generating desired returns? (The cost of capital in Turkey has risen too high, the expected inflation level of 2018 is now above 15%, and the benchmark bond yields are approaching 20%). And, if their answers to these questions are no, 3) What is their plan to improve the situation? If ‘hoping things will get better’ is part of their answer, I say it out loudly that it shouldn’t. Though growth prospects in Turkey are very appealing in many sectors, country-specific challenges are so wide that only a management with a precise business plan and the right task force can succeed. Outstanding organizations can move forward only by applying the best talent to the critical areas of the business, and not by ‘giving everyone a chance’.
An unbiased and experienced outsider can set forth deviations from the status quo from what may be ideal cases: be it about financial management, human resources management, process management, or in any area key to success and profitability.
The Turkish economy is reliant on external financing, leaving the country at the mercy of foreign investors. This is one of the reasons why the Turkish state offers one of the world’s most sophisticated investment incentives scheme, one that was recently chosen by the Bari-based EIEAD (European Institute for Eurasian Dialogue) as the most advantageous incentives system for entrepreneurs seeking the best location for their FDI (Foreign Direct Investments). I can personally vouch that the incentive-acquisition in Turkey is not only an advantageous scheme, but also has a lean process: When I recently assisted an Italian client to acquire half a million Turkish Lira worth of tax incentives—which the client will benefit for the following three years—it took me only a couple of weeks to prepare all the necessary documentation, submit the application, and get the final approval from the Turkish Ministry of Economy.
Another recent development in Turkey is that the government, in May 2018, passed an amnesty law that has quite an interesting coverage for any company—local or foreign—operating in Turkey. It includes options such as: a) Restructuring of debt—with very low interest rates—towards some state institutions, b) Slight augmentation of tax breaks (also retroactively) that helps liberate companies from any potential tax audit, c) An opportunity to correct errors in accounting registrations for inventories, tangible assets, cash, receivables from shareholders, and so on, d) An opportunity to revalue real estate for the 2004-2018 period that may at the end provide significant tax advantages—due to high amortization—for companies that carry real estate on their balance sheets.
Both the incentives and the amnesty law are widely welcomed and utilized. These are some examples of how the state tries to ease investments and provide buffer for FDI and generate employment. Turkey, at the end, is an emerging market with its specific risks. It is always up to the entrepreneurs to calculate the pros and cons of every investment decision. But, having the right tools to evaluate and the right team to screen any plan is crucial.
There are 1,100 Italian companies operating in Turkey, and our aim is to make sure our clients optimize their operations; therefore, we assist them with business development, financial management, and human resources challenges, providing solutions and an overall risk assessment in these areas.
In Italian, there’s an expression called ‘una cosa turca’—literally meaning a Turkish thing—which is used when something odd happens. For doing business in Turkey, don’t take this for granted; if the business in Turkey is experiencing particular challenges, the entrepreneur should look for the right answers.
When I was sixteen years old, I joined a skydiving camp in Eskisehir, a beautiful city in mid-west Turkey, where I spent three months skydiving every day with wonderful friends. Until now, it remains the best summer vacation I have ever had. At the end of summer, on a free jump from a Russian-made Antonov plane at 10,000 feet above ground, I had an accident on air and could not open my parachute until I reached 900 feet—at which point my body was estimated to have exceeded a speed of 200 km per hour. Those couple of minutes that I lived through were tough, and I mean it. At 900 feet, the hi-tech mechanism I was carrying as a precaution managed to automatically inflate my spare parachute, allowing me to land without any major physical injuries. Doing sports or operating businesses in high-risk environments is joyous and brings high returns, but both require screening and precaution systems.
What is your precaution mechanism when investing in a high-risk market like Turkey?
* The tweet was by Alan Weiss, the American entrepreneur and the writer of the famous book 'Million Dollar Consulting'.
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