The Economic Impact of Globalization on Turkey Assignment

The Economic Impact of Globalization on Turkey Assignment Words: 6121

Introduction Globalization has affected the world in many different ways, including cultural exchange, language development, and information diffusion, along with worldwide economic and financial growth. Here we wish to analyse the costs and benefits of globalisation to the Republic of Turkey. More specifically, we will look at the economic and business impacts globalisation has made on Turkey and its current position with regard to the world economy. Current Economic Situation Today’s economic outlook for Turkey is deteriorating. GDP growth has been revised to 3. 6% for 2008 (against 4. 3% previously) and to 3. % for 2009 (previously 4. 0%). Turkey’s unemployment rate rose to 9. 4%. The slowdown in growth in 2007 (GDP growth of 4. 5%) and 1H08 was mainly due to the deceleration in domestic credit following the rise in domestic interest rate (to dampen an acceleration in inflation). External financing of the country’s large account deficit is becoming more challenging given the decline in FDI inflows and the global financial turmoil. The macro environment is more challenging for Turkish banks, because of weak economic growth and ongoing financial market volatility. Turkish banks have become better capitalised (at 17. % at end-June 2008) and less reliant on wholesale funding (13%) since the 2001 crisis. We believe the asset quality deterioration is the main risk for the sector. The sector has experienced higher default rates in credit cards and consumer loans in 2007 and 1H08. Although most Turkish banks are expecting higher NPLs for year-end 2008 and 2009, we believe that the impact of a sharp deteriorating macro environment in the loan asset quality is underestimated. We have to keep in mind that Turkish banks’ loan books remain untested through a full economic cycle and vulnerable to interest rate hikes.

The impact of the global slowdown on the Turkish economy, Countercyclical budgetary policy: In 2007, ahead of presidential and general elections, fiscal policy had already been relaxed (the primary surplus has been reduced to 4% from 5. 5% in 2005-2006. In 2008 and 2009, fiscal loosening should be maintained ahead of local elections in Q2 2009 (Additional subsidies for agriculture, transfers to local administrations, and an 18. 4% hike for civil servant salaries, etc. ) Since 2008, the financing of the current account deficit has become riskier with less FDI and thus more debt-creating capital inflows.

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Long-term borrowing remains the main source of financing, which is positive concerning external solvency but has also caused net short-term borrowing to increase. In 2009, given that the global environment is not FDI-supportive, tensions on external liquidity could easily arise because the coverage of the current account deficit implies a high rollover ratio of the external debt. Turkish Industry Pre- late 1970s: Heavy government control. Trade protectionism. Before the 1980s, Turkish modernizers applied the import-substitution strategy.

It was designed to make the country an independent producer of manufactured goods. The result was a striking unfolding of industry, especially between 1950 and 1977, when the industrial sector grew at an annual average rate of 8. 6% in real terms (10% annually from 1973 to 1977), expanding its share of GDP from 12 percent to 25 percent. The country’s infrastructure has been vastly improved and the industrial sector has achieved the ability to produce a wide range of products. The country’s first factories processed food and nondurable consumer goods.

Then they developed the intermediate industrial products, including cement, iron and steel, chemicals, and fertilizer. By the end of the 1970s, the country was developing capital goods industries and high-technology products. In spite of the diversity of production lines and the fast pace of the industrialization, Turkish industry was not able to attain efficiency. The excessive protection forestalled competition that would have promoted efficiency. It was much more attractive to sell in the protected home market than to export. Therefore, there was not comparable increase in their exports.

On the contrary, the rise of montage industries which used imported components to assemble the products primarily (i. e. electronic goods, motor vehicles, consumer durables, etc) meant that industrial growth required ever more imports. Paradoxically, the attempts at import substitution to decrease its trade balance deficit tended to aggravate it. This strategy also caused other problems: the capital-intensive nature of many industrial investments, especially those in the intermediate goods sector, caused employment in industry to grow relatively more slowly, which lead to structural unemployment.

Moreover, dependence on imported petroleum to develop its industry made the country highly vulnerable to increases in oil prices. These are the threats for the country to achieve sustainable economic growth. Late 1970s and early 1980s: Economic Reform In the late 1970s, the industrial sector of Turkey had reached a turning point. In the short run, it needed to decrease the trade balance deficit. It was facing shortages of energy, imported machinery parts, and processing materials.

These had caused a decline in industrial output during the last few years of the decade. In the longer run, to become more efficient and to be able to have more exports, the industrial structure had to be adjusted in accordance with the country’s comparative advantages. In effect, industry would have to transfer resources out of uncompetitive industries to favour those that could compete in world markets. In line with the shift to an outward-oriented development strategy, in 1980 Turkey’s policy makers began to revamp the country’s industrial policy.

The new policy set forth four related goals for industry: ??? Upgrading the role of market signals in decision making ??? Increasing manufacturing exports ??? Enlarging the private share in manufacturing ??? Reforming the SEEs to reduce inefficiency In the early 1990s, a fifth goal was added: privatization of public-sector entities. It was a difficult adjustment process. The aim was to attain a sustainable growth in the industrial sector. Under the new outward-oriented development strategy, as under the old import-substitution policies, industry was to be the leading sector of the economy.

More emphasizes were put on efficiency and export goods. Policy makers were also concerned with obtaining adequate energy supplies and providing enough work for the growing labour force. Since later 1980s: Growth with fluctuations Industry grew since the late-1980s, albeit with some major fluctuations. State enterprises were restructured to reduce their government subsidies and to make them more productive and competitive with private firms. Production rose by an annual average of almost 5% until 1993, but fell more than 6% in the recession of 1994.

It recovered strongly from 1994 to 1995, rising 30% and then another 4% in 1996. However, many of the problems of import substitution had not yet been overcome. Much progress had been made in spurring private-sector-led industrialization, particularly in light manufacturing and export promotion. Nevertheless, much of industry was still dominated by the public sector in early 1995, and private-sector companies still depended on crucial inputs from public-sector industries. There was a sharp decline in industry due to the Russian financial crisis in 1999.

Another period of recovery lasted until the banking crisis of late 2000. The Turkish State Institute of Statistics reported the 2001 industrial output declined 8. 9% including a 9. 9% decline in manufacturing, a 7. 9% decline in mining, and a 1. 5% decline in utility outputs. Current State: Since 2002, production has risen by an annual average of more than 6%. Industry accounted for about 25% of GDP and employed the same percentage of the labour force. In view of the collapse of domestic demand in its worst economic slump to date, Turkey is looking to automotive exports to help revitalize the economy.

It needs a lot of capital investment: much of the production of machines, consumer goods, and tools takes place in hundreds of small machine shops and foundries, where little special-purpose machinery is used. Petroleum refining sector is Turkey’s largest industry sector. Turkey has very limited energy resources, but because of its strategic location, several major oil and gas pipelines cross it. Turkey has six oil refineries, four operated by the state, which by 2002 had been 35% privatized in two public offerings with a third. The government is aiming to bring the private share ratio to 100%.

The textile industry is the largest in manufacturing sector. The removal of EU quotas on imports of textiles and apparel when Turkey joined in a customs union with the EU in 1996 has improved growth prospects and greater opportunities. Other important Turkish enterprises are brick and tile, glass, leather, chemicals and pharmaceuticals, metalworking, cordage, flour milling, vegetable-oil extraction, fats and oils, paper products, printing and publishing, plastic products, and rubber processing. Effects of Globalization on Financial & Banking System of Turkey

Ever since the year 1980, Turkey’s inflows of foreign direct investments (FDI) have increased. This was due mainly to a shift from the protectionist trade regime that had dominated Turkish economic policy, to export-oriented economic liberalisation. The inflow of FDI into Turkey in 1980 was recorded at a low US$18 million. From the mid-1980s on, the annual inflow of FDI to Turkey increased heavily, and the country reached an all time record high in 2005, attracting FDI close to US$10 billion. Even still, Turkey has continuously had major issues in attracting foreign direct investments for a number of reasons.

The Underlying Reasons for Foreign Entry to Turkey Foreign banks, which are fixed at low profit levels and which do not have further growth opportunities in their home countries, can earn higher profit margins by increasing their share of domestic debt in the host country markets they enter. For example, the European Union banking system, which has been growing on average at 1% and has not been very profitable for about ten years, has motivated its banks to consolidate across the EU. However, over time, after large-scale consolidations have yielded their profits, the only possible way to increase profits remained internationalisation.

Moreover, the consolidation in the American banking sector created giant financial institutions, such as JP Morgan Chase’s take over of Bank One. Additionally, some big American financial institutions have already reached the maximum allowable market share in their home countries and are looking for opportunities for mergers in Europe. This is another reason for EU banks’ expansion abroad. At this point, Turkey with its high growth potential, figures as a strong candidate country for foreign entry, as shown in Table-1 below. Table-1: Factors Pulling Foreign Banks to Turkey Population |No limitation to foreign ownership of banks(*) | |Per capita income |Easier entrance to the Turkish market(*) | |Reforms in the investment area(*) |Interest rates | |Foreign trade and growth potentials |Inflation rates | |Geopolitics |Corporate governance system | |EU accession process |Auditing and regulation(*) | |Easy takeover of Turkish banks |Exchange rate system | |Size of Turkish banks |Basel II Agreement | |Equal treatment of Turkish & foreign banks(*) Consumer credits and mortgage | | |(*) These are due to regulatory changes following the external financial | | |liberalization process in | | |Turkey starting in 1984. | | The three greatest factors attracting foreign entry to Turkey are its increasing population, its relatively high per capita income, and the fact that it is located at the intersection of Europe and the Middle East. Reforms carried out in the investment environment, improving macroeconomic performance along with the high foreign trade and growth potentials of the Turkish economy relative to neighbouring economies are additional factors attracting foreigners.

Moreover, Turkey is in the EU accession process and Turkish banks are relatively small, and thereby easy to take over. In addition, there being no difference in the governmental treatment of Turkish versus foreign banks and no limitation for the share of foreign ownership of banks, foreign banks have been quite willing to begin operations in Turkey. Furthermore, it is easier than ever to enter into the Turkish market. Interest rates are lower, inflation rates have dropped to single digit numbers. Corporate governance systems are improving. There is better auditing and regulation in the banking system, and a flexible exchange rate system has been put in place.

Moreover, there is the Basel II Agreement, which will go into effect in 2007, according to which the cost of capital will be lower for banks with high-quality customers and advanced risk measurement systems. Capital adequacy ratio, which was set at 16. 9 % by the Basel II Agreement, has already been exceeded, indicating a strong banking structure. Effects of Foreign Entry to Turkey: In 1990s, foreign banks entered Turkey by either acquiring a small or majority share in a domestic enterprise. Today, foreign entry is realized with the acquisition of at least a 50% share. Yet, due to their relatively small share in the overall Turkish market, foreign banks have not much affected the oligopolistic structure and high concentration in the Turkish banking system.

Turkish banks have been affected by the financial liberalisation process to different degrees depending on their missions, the composition of assets and liabilities in their balance sheets, their degree of risk aversion, the degree of governmental support they receive, their ability to deal successfully with the changing environment, and the effectiveness of incentive schemes as a solution to possible conflicts of interest between the managers and owners of banks. Because of this, some banks have been affected negatively, while some others have gained considerably from the process. After financial liberalisation, it has been observed that net interest margins, asset returns and cost per person have all declined, as a result of which competitive pressure in the Turkish banking sector have increased.

In addition, during crisis periods, foreign banks have not behaved in ways that minimized the distortion effects of crisis; but in ways that triggered further crisis, leaving the host country with a negative effect on the balance of payments. This is one reason why physical entry has not been regarded as a high priority. The number of foreign banks is seen as more important than their actual share in the banking sector. Therefore, in spite of the low share of foreign banks, there have been some structural changes in the sector following their entry. Foreign entrants have contributed to such areas as financial and operational planning, credit analysis, marketing and human capital.

The entry of foreign banks has deepened the Turkish financial market, because of which domestic banks are stronger against crisis, interest rates have declined, and credit markets have become more active. Transparency and risk management improved with the new entries. Among other benefits from foreign entry are technological transfers from foreign banks, increasing variety of services and financial instruments, and spreading use of internet banking. The most important effect of foreign bank entry is an efficiency increase because of fewer workers to more technology-aided work. Studies on the efficiency effect of foreign bank entry show that new banks have been more efficient than the established ones, especially in the first ten years. After ten years, however, there is limited gain from the scale economies. Denizer et al. 2000:15) studied the efficiency effect of foreign entry along with the issue of ownership structure. They showed that foreign banks and private domestic banks have similar scale efficiency. One effect of foreign banks has been on the balance of payments in proportion to their shares in the sector. They provided financial support to large-scale projects, and through their relationship with the international financial markets, they facilitated the entry of foreign capital into Turkey. Foreign banks have chosen to work with a smaller number of clients than their domestic counterparts have done. However, with this small number of clients, they engaged in transactions of higher volumes.

Moreover, foreign banks provide education to the workers, because of which the banking sector will have higher quality work force in the future. Globalization affects Turkish Trade There is a widespread support for trade liberalisation in order to provide more benefits to the people in a more integrated global economy. Theory and empirical evidence have shown that trade liberalisation is an important contribution for economic development, particularly for the poorer countries. In the Turkish case, trade liberalisation has been successful since it started. Outside the import of oil, trade had played a minor role in the economy of Turkey until about 1980, but it grew rapidly through the 1980s. The sum of exports and imports reached about 49 percent of GNP by 1985.

By 1994 this total had fallen somewhat, to 42 percent of GNP. The trend toward increased trade had begun in the 1970s as imports increased–primarily because of the rise in oil prices–and limited incentives for exports were implemented. The turning point came after 1980, when a realistic exchange rate, strict monetary policy, and efforts to strengthen bilateral cooperation with the country’s trading partners led to sharply increased exports. Improvements in the balance of trade, in turn, allowed gradual liberalisation of the import regime. After 1980, Turkey shifted its emphasis in trade policy from strictly limiting imports to actively encouraging exports.

In March 1985, Turkey signed the General Agreement on Tariffs and Trade (GATT), which committed the country to abolishing most export subsidies over a three-year period. In January 1993, in accordance with its commitments under the GATT agreement, Turkey consolidated and reduced most import charges. Currently Turkey’s trade is mostly with Organisation for Economic Co-operation and Development (OECD) member countries, particularly the European countries. Exports to the EC increased from 35 percent of total exports in 1950 to almost 45 percent in 1992, while imports from the EC grew from 33 percent to about 40 percent during the same period. Turkey’s most important trading partner is Germany, which accounted for 15 percent of imports and 24 percent of exports in 1993.

Trade with Middle Eastern countries increased considerably after 1970, partly because of Turkey’s increased expenditures for petroleum imports, and peaked in 1982 at 45 percent of total trade, declining to about 15 percent by the early 1990s. Turkey and the EC entered into an association agreement on December 1, 1964, with the aim of full membership for Turkey after the implementation of a customs union, which the Turkish government hoped would occur in 1995. Turkey’s record in meeting the European body’s tariff-reduction schedule has undergone several permutations. It was adhered to until 1976, when it was abandoned, only to be reinstituted in December 1987.

Several Turkish industries–in particular the automobile industry–fear total integration, whereas the EU in the mid-1990s fears the competitive strength of the Turkish textile industry. The Customs Union between Turkey and the European Union was the milestone to complete the process of trade liberalization, which had already started in the early 1980s. Global economic environment and Turkey’s Structural Adjustment Programs, which has been supervised by International Monetary Found, had created transformation stage of Turkish manufacturing industry in the trade liberalization period in the late 1990s. The sector’s relative size to GDP has not changed remarkably during the last decade, while the Turkish manufacturing sectors production and export capacity have been growing. The EU and Turkey enjoy a deep trade relationship.

Indeed, the EU ranks by far as number one in both Turkey’s imports and exports while Turkey ranks 7th in the EU’s top import and 5th in export markets. Main Turkish exports markets in 2006 were the EU (51. 7%), USA (5. 9%), Russia (3. 8%), Iraq (3. 0%), Romania (2. 8%), and United Arab Emirates (2. 3%). Textiles and transport equipment dominate EU imports from Turkey, accounting for about 30% and 22% respectively of the total. Other important imports are machinery (15. 1%), and agricultural products (8. 1%). Imports into Turkey came from the following key markets: the EU (39. 8%), Russia (12. 9%), China (7. 1%), USA (4. 4%), Iran (4. 2%), and Switzerland (3. 0%). Main EU exports to Turkey are machinery (27. %), transport material (22. 0%), and chemical products (17. 5%). In addition to the Custom Union with the EU, Turkey has signed Free Trade Agreements with EFTA, Israel, the former Yugoslav Republic of Macedonia, Croatia, Bosnia-Herzegovina, Tunisia, Morocco, the Palestinian Authority, Syria, Egypt, and Albania. Competition As the first pillar of the economic policy consensus, competitive market systems are the basis of all economic activity. As dictated by the laws of supply and demand, competition is essential to ensure the efficiency and effectiveness of markets and has become a primary focus for economic policy makers throughout the world.

As globalization continues and the role of individual domestic markets is lessened, governments are focusing on ensuring policies and regulations are in place to promote competition within their borders and cement their country’s position as a key player in the global market. Establishing a healthy competitive environment has been at the forefront of changes in the Turkish economy for a multitude of reasons; a necessity due to globalization, interest in gaining foreign investment and most importantly accession into the European Union. With an initial application made in 1987 and negotiations for accession commencing in 2005, admittance to the European Union and access to the economic benefits of full membership is of utmost concern for Turkey and a key component in ensuring success will be Turkey’s ability to meet competition policy requirements.

The changes resulting from globalization and removal of borders, in the economic sense, has benefited the Turkish economy substantially over the past ten years, as Turkey has become one of the largest foreign direct investors in Central and Eastern Europe, increasing investment outflows by 127% between 2006 and 2007. While Turkey has experienced an increase in foreign investment inflows by 10. 3% during the same period, there is still considerable room for growth from new opportunities. 1 However, faced by increased competition from other low cost countries, improvements in competition policy will enable Turkey to promote itself as a viable and profitable investment opportunity.

In 1994, the Act on the Protection of Competition, “Competition Act,” was passed and a few years following, in 1997, the Turkish Competition Authority, or TCA, was established as an autonomous enforcement agency. The goal was to protect competition, promote efficient markets, and oversee consumer welfare as Turkey transitioned away from government-controlled enterprises toward market based competition. The Act focuses efforts on three main areas: prohibiting agreements, practices, and decisions, which actually or potentially prevent or restrict competition, prohibiting abuse of dominant power by one or more firms working in conjunction and oversight of mergers, acquisitions, and joint ventures to prevent monopolization. The first two objectives very closely parallel EU competition law; however, the third group of regulations has diverged recently.

Studies by the OECD over the years have confirmed that the Competition Act and the TCA have done an excellent job at articulating and implementing a sound competition policy focusing on transparency and are considered one of Turkey’s most effective autonomous agencies. However, weaknesses regarding disorganization in the approach to harmonize with EU competition law have been noted and work remains in order for Turkey’s competition policies to suffice the requirements for EU accession. 2 To foster competition and promote trade with the EU, Turkey entered into the EU-Turkey Customs Union on December 31, 1995. The Union removed customs restrictions and other trade barriers to allow for the free flow of goods between Turkey and the European Economic Community. The Customs Union also promotes the goal of harmonizing legal and institutional frameworks to those of the European Union.

The Customs Union has proven to be extremely lucrative for Turkey; in 2007, the EU’s share of Turkey’s total exports amounted to 56% and in return, 41% of Turkey’s total imports came from the EU, thus making the EU the number one trading partner, in terms of both imports and exports, for Turkey. Turkey is also the EU’s seventh largest trading partner. 3 it is clear that Turkey plays a prominent role in trade with the EU and as such, the EU Commission continues to encourage Turkey to make advances to further align with EU regimes. The establishment of trade agreements and the effects of globalization allowed Turkey’s GDP to grow at an average rate of 6. 8% over the previous five years, however faced with increased competition from low-cost countries, GDP growth has slowed and is forecast to be 3. 9% for 2008. According to the OECD, the level of competitiveness previously obtained is not expected to be restored. In order for Turkey to remain competitive, productivity and innovation must be raised to continue to attract the foreign direct investment required for continued modernization. 5 Additionally, as a large part of Turkey’s economy is carried out in the informal market, if a shift to formalize these competitiveness reserves can be made, productivity can be enhanced, however this requires additional reforms in labour market regulations and modernization of capital markets. Turkey has continued to make the necessary structural and regulatory reforms to align themselves with the EU and has made significant progress in the recent years.

Price liberalization has been a focus, with price subsidies being phased out and the privatization of some public companies, notably in the sale of Petkim, petrochemicals, Ismir, railway port facilities, Tekel, tobacco production, and an additional goal to privatize some public electricity companies by the end of 2008. Additionally, amendments to the Telecommunications Authority in 2004 provided for the breakdown of the Turk Telecom monopoly and enhanced the competitive landscape of the telecommunications industry by allowing new market entrants. During the years that followed acquisition of the former Turkish service providers by foreign investors, e. g. Vodaphone who purchased Telsim, a Turkish mobile provider, further enhanced competition in the market and most recently, changes allowing for mobile number portability are set to provide an additional boost and the potential for new foreign investment. Turkey has made great strides towards implementing and improving competition policy, however in order to achieve comparative levels of regulation necessary for admittance into the EU, progress must continue. Most notably, mechanisms for transparency and monitoring of state aid and supporting policies must be implemented to remediate deficiencies, as a considerable amount of government control on pricing and aid programs remains in place.

Continuation of privatization programs for the many state owned monopolies, as well as oversight of mergers in the banking sector, which currently allows for an exemption of review if M&A activity result in attainment of less than 20% market share, is essential. Turkey has recently drafted a new version of the Commercial Code, which aims to remove restrictive administrative barrier to entry and operation, reduce and simplify the tax system and continue efforts towards privatizing state-owned agencies, and is expected to be adopted in the near future. Already a strong competitor in textiles, transport vehicles, and white goods, and new opportunities in the area of telecommunications and energy make Turkey a serious contender in the global competitive landscape; however, continued efforts and reforms are necessary to maintain their progress.

In addition, as EU accession is the primary goal for Turkey, it is evident that Competition Policy will remain at the forefront of economic policy for many years to come. Works Cited 1 “OECD FDI Outflows and Inflows Reach Record Highs in 2007 but Look Set to Fall in 2008,” OECD Investment News, Issue 7, OECD, June 2008. 2 Competition Law and Policy in Turkey, Policy Brief, OECD, August 2005. 3 Turkey: EU Bilateral Trade and Trade with the World, Trade Statistics, European Commission, September 2008. 4 World Economic Outlook Database, International Monetary Fund, April 2008. 5 Science, Technology and Industry Outlook 2008: Profile of Turkey, OECD, October 2008. The effect of globalisation on Information Technology in Turkey

There has been enormous growth in Turkey from a largely agriculturally based economy towards higher technology industries. Access to foreign technologies has played an important role in this regard, and foreign engineers are honoured and welcomed. Views on entrepreneurship have changed as well; there are now many local networks, which focus on business, technology, and education matters of common interest. [i] In a 2007 study by the OECD, the Revealed Comparative Advantage (RCA) indicator was compiled for several countries, among them Turkey, versus the total OECD membership. When the RCA is greater than 1 then the country has a relative comparative advantage for the product.

In High-technology industries, Turkey’s RCA stayed below 0. 5 from 1995 to 2005. In Medium-high-tech industries, Turkey’s RCA ranged up from 0. 3 to nearly 0. 6 from 1995 to 2005. In Medium-low-tech industries, Turkey began above 1. 0 in 1995, fell below 1. 0 around 2002, and rose again to 1. 0 from 2004 on. In addition, in Low-technology industries, Turkey remained consistently above 4. 0 from 1995 through 2005. [ii] Thus, while Turkey has made advances, there remains quite a ways to go before becoming competitive in the world market in High-technology industries. Back in 1990 Turkey did rank highly among European nations in telecommunications infrastructure.

The subsequent advances in telecommunications technology and implementation in Europe rendered that ranking obsolete, but the fact remains that Turkey invested heavily in its telecommunications infrastructure during the 1980’s. Consequently, Turk Telekom together with other telecom firms now offer many of the services available in other countries, with the notable exception of high speed internet lines, e. g. ISDN, ATM, Frame Relay or T1/T3 technology. In general, the Turkish government has been responsive to the need for high-technology offerings and has made efforts to facilitate the process of equipping its population with home and office computers by reducing tariffs on computer hardware and software. Currently automation and/or computerization are being implemented in nearly every industry and sector.

The government is spending great sums of money on computerizing the national police force and ministries. Wide-area networks are being implemented as part of these programs, in coordination with Koc-Unisys, Turkey’s second largest computer firm. The Turkish computer market is experiencing great growth. Computers can be found and purchased at reasonably premium prices. Any American software program, including operating system software, CAD packages, and process control systems, can be purchased in Turkey. After-sales client support is now available as well. The number of software outlets is increasing slowly but is limited by the sale of pirated copies on the black market.

Perhaps one of the most treasured IT presences in the country is the Microsoft subsidiary in Istanbul, which is responsible for sales and support of its products to all of the Middle East, Central Asia, and Northern Africa. There are also many other software houses in Turkey, producing software for accounting planning, inventory control, and other database analysis programs, as well as customized software for financial, manufacturing, and graphics applications. Perhaps the biggest weakness for Turkish IT businesses is the fact that very few Turks speak English, but this is often required for IT professionals’ work. [iii] IT Market expansion The Turkish IT market is projected to increase from US$5. 2bn in 2007 to around US$10bn by 2012, meaning it would be one of the fastest growing markets in the region.

Despite continuing uncertainty concerning its EU membership destiny, Turkey is expected to keep on being one of the key IT markets in the region for IT vendors. Turkey’s cultural and geographical position as a crossroads between Europe and the Middle East serves as an extra advantage for IT vendors wanting to gain further market share in the region. With a population estimated at 71,892,808 (July 2008) with a median age of 29 years old[iv], there is likely a strong demand for future PC sales, even though the current market penetration is still below the global average. The government has set a goal of creating a US$9bn IT industry, increasing computer ownership to 51% and internet usage to 48%. At any rate, computer market penetration rate is supposed to reach around 30% by 2014.

The Turkish Ministry of Transport has promoted a number of projects to advance IT offerings in the country, including military broadband infrastructure, the establishment of computer labs in schools, extending internet connection to provinces and towns, and providing telephone service to all villages. Currently internet penetration in Turkey is only around 23%, compared with around 50% in EU countries. While Turkey is certainly an emerging economy, it does have some advantages, e. g. having electricity in nearly every home and the third biggest group of credit and debit card users in Europe. Currently the banking and telecoms sectors are providing massive demand for IT products and services.

Retail and tourism are also dynamic sectors beginning to turn to high-technology offerings. There is also considerable growth potential in areas like healthcare. The growth potential and strategic importance of the Turkish PC market continues to attract new entrants while at the same time meaning great profits for local retailers. NEC has set up a subsidiary in Turkey to market notebooks, desktops, servers, and storage applications, by working with local distributor Ozzel Bilgi Islem. Domestic electronics retail chains, such as Vatn Computer, Gold Computer, Teknosa and Bimeks are expanding aggressively, with Gold utilising a franchising model to increase the number of its stores.

Sales of computers including PCs, notebooks, and accessories are expected to rise to a dollar value of US$3. 4bn in 2008, up from US$2. 8bn in 2007. Computer costs remain high relative to GDP/capita of around US$5,000, and consequently computer penetration in Turkey has stayed below the global average of 10%. The cost of a computer in Turkey is estimated at as much as three times the price in some other emerging markets. However, as market demand is increasing rapidly due to a number of campaigns to drive computer penetration, prices may be expected to fall to superior value levels. Computer sales compound annual growth rate (CAGR) for the 2007-2012 is forecasted at 15%.

Lower inflation and interest rates will also encourage greater demand for PCs. Until a few years ago, demand for computers was confined mainly to big cities like Istanbul, Izmir and Ankara. Now the fastest growth in sales is coming from the Anatolia region. The surge in sales has been attracting both foreign and domestic computer firms to up their operations there. The growth potential of the Turkish PC market has seen vendors increase investment and set ambitious sales targets for 2008. For example, market leader HP earned US$900mn in revenues in 2007. Acer achieved growth of over 10% in 2007. Growth in demand, as well as the launch of cheap PC programmes, is driving investment in local production as well.

Fujitsu Siemens is carrying out studies about moving its computer chip production to Turkey. HP has also said that it views Turkey as a potential computer-manufacturing centre. The software market in Turkey was estimated at US$687mn in 2007, and it is expected to rise to around US$809mn in 2008. CAGR over the forecast period (2007-2012) is projected at 12%. Strong growth in the corporate sector accounts for why Turkey ranked as one of Microsoft’s top five growth markets in 2006. In addition, the government has encouraged the trial of open source software in public organisations, starting with the Ministry of National Defence, where Turkey’s domestically developed ‘Pardus’ operating system will be used.

However, to continue growing this market, Turkey must bring down its rate of illegal software usage which, at 66%, is twice the global average. The most important measure in the government’s plan to resolve this issue is to end the statute of limitations on copyright infringement cases. A new law has also called for a campaign of raising awareness and for a regime of software audits of companies. [v] The IT services market is projected to grow quickly over the 2006-2011 forecast period, as companies look for more sophisticated support, as well as outsourcing of non-core functions. Spending on all categories of IT services is expected to be US$1. 1bn in 2008. Sector CAGR is forecast at around 12% over the 2007-2012 period.

The support services segment was estimated to account for around 50% of total spending, and managed services for around 12-15%. Internet penetration was estimated at 23% by year end 2006, representing between 13 and 17 million users, and the number of users is expected to grow to about 27 million by 2012. Broadband penetration was around 2. 5%, and this is expected to reach 4. 5 % within the same period. In 2007, the OECD recommended further initiatives to increase public utilisation of ICT, with an EU Statistics Office study showing Turkey among the countries in which internet access is very low. The research found that only 39% of Turks had a computer at home. [vi] Conclusion

With the increasing utilisation of higher technology products and services by SMEs, increased demand for computers, software, and internet offerings among the relatively young population, the establishment of the IT services sector and the deregulation/privatisation of the Turkish telecom industry, more FDI and greater competition for the Turkish market is driving growth and can be expected to do so for the foreseeable future. ———————– [i] OECD Economic Surveys??: Turkey (OECD Vol. 2008/14 July 2008), Box 1. 1 The rise of “Anatolian Tigers” as cultural change, p. 26 [ii] OECD Economic Surveys??: Turkey (OECD Vol. 2008/14 July 2008), Box 1. 2 Turkey’s Revealed Comparative Advantages (cont. ), Figure 1. 6 Trade specialization is not very dynamic but quality improves, p. 29 [iii] http://www. armory. com/~turkiye/it/index. html [iv] https://www. cia. gov/library/publications/the-world-factbook/geos/tu. html [v] http://www. pr-inside. com/turkey-information-technology-report-q-r804349. htm [vi] http://www. usinessmonitor. com/it/turkey. html Further Works Cited 1. THE IMPACT OF GLOBALIZATION ON THE TURKISH ECONOMY (May, 2002) Central Bank of the Republic of Turkey 2. Financial Markets and Globalization in Turkey Tulay Arin University of Istanbul, Faculty of Economics 3. Economic Survey of Turkey 2008, Turkey Desk at the OECD Economics Department 4. Turkey’s Evolving Integration into Pan-European Markets, Francis Ng 5. http://www. country-data. com Turkey ??? Industry (http://www. country-data. com/cgi-bin/query/r-13968. html) 6. Encyclopedia of the Nations – Asia and Oceania ???Turkey (http://www. nationsencyclopedia. com/Asia-and-Oceania/Turkey-INDUSTRY. html)

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