I. Introduction
This paper is intended to provide a compilation of information about the nation of Turkey in order to gain a deeper understanding of the business environment that exists within the nation. The country of Turkey is continuously undergoing significant changes that radically impact the way the country operates in the globally economy. This paper emphasizes those modifications and their implications for both the Turkish nation and its people. The paper will begin with the background of the country, followed by the accounting and legal environment, the potential application of the base of the pyramid protocol, the impact of globalization, and the effects that have been caused by various organizations operating within the country.
II. Background
History & Statistics
Modern day Turkey established its roots in the former Ottoman Empire. The Ottoman Empire began in the 13th century stretching across the Middle East, as well as parts of Europe, Asia, and Africa. The Ottoman Empire largely collapsed after defeat in the First World War. After the First World War, the Turkish War of Independence resulted in Turkey, in its modern day form, being founded in 1923 (CIA, 2010). Istanbul, Turkey’s largest city also goes back to ancient times as it was formerly known as Constantinople. Further back in history, it was called Byzantium. Constantinople has been part of the Ottoman Empire as well as the Roman and Byzantine Empires.
After the founding of Turkey, the country began operating with a one party system. The first occurrence of an opposition party winning power was in 1950, after which a peaceful transfer of power took place (CIA, 2010). However, this has not always been the case. Turkey has been unstable in the past. Military coups took place in 1960, 1971, and 1980, with civilians regaining power each time (CIA, 2010).
Turkey’s current government is a republican parliamentary democracy. There are three branches of government. The executive branch has a president who is elected to a five year term, but has a mostly ceremonial role. The prime minister is at the top of Turkey’s government and is selected by the president. The legislative branch is made up of the unicameral Grand National Assembly of Turkey. The judicial system contains the Constitutional Court, functioning much like the United States Supreme Court (CIA, 2010).
Geographically, Turkey lies in the Middle East. Most of the country is part of southwestern Asia, with a small portion spilling into southeastern Europe. The country is surrounded by the Black and Mediterranean Seas. Bordering countries include Iraq, Iran, Syria, Greece, and Bulgaria (CIA, 2010). While Turkey identifies more with the Middle East geographically, the country is more European than the rest of its Middle Eastern neighbors. Turkey is a NATO member and has been since 1952. The country has also been a United Nations member since 1945. Currently, Turkey is a candidate to join the European Union. (CIA, 2010)
Turkey has a population of almost seventy-seven million, ranking it seventeenth in the world. Its population is currently growing at a rate of 1.312% (Dept. of State). The predominant religion is Muslim, with 99.8% of the population identifying themselves as such (CIA, 2010). Most of the Muslim population is Sunni. The other 0.2% of the population is made up mostly of Christians and Jews; however, this number pales in comparison to the Islamic population (CIA, 2010).
Predominant Economic Model
Economically speaking, Turkey is a reasonably developed nation. The economy consists of a mix of modern industry, commerce, and maintains a fair amount of agriculture. A staggering 45.8% of the labor force is employed in the service sector, 29.5% spend their lives working in the agriculture sector, and the remaining 24.7% are in a job in the industrial sector (CIA, 2010). Turkey has a gross domestic product of $863.3 billion, ranking it 18th in the world (CIA, 2010). The largest industrial sector is the textile industry, making up 33% of industry in the country. However, automotive and electronic industries are growing rapidly (CIA, 2010). Another prominent industry in Turkey is the oil industry. Oil pipelines flow through the country and connect oil from the Middle East to Europe (CIA, 2010). In the past, the government has been a major participant in industry, banking, transport, and communication. However, this role is in decline as the country has experienced a move towards privatization (CIA, 2010).
Turkey has not been immune to the current economic downturn that is facing the world. The country’s gross domestic product decreased 5.6% in the past year. Turkey also faces a high external debt with an astounding $274 billion dollars being owed to various countries (CIA, 2010).
World Bank/IMF Report on Observance of Standards and Codes (ROSC)
As the economy of the world becomes more global, financial information must be comparable and dependable to the users across national borders. Turkey, through the Turkish Accounting Standards Board (TASB), has made recent efforts to meet the requirements of European Union candidate countries, as well as meet the reporting guidelines of International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA). In the past, many Turkish companies were “family-controlled” and utilized private financing. The availability of financial statements was “not considered a public good provided to meet the needs of market participants generally, but rather a resource to which access was restricted, available only to those having the power to require its provision” (Gielen et al., 2007, p. i). The current Commercial Code of Turkey has been in effect since 1957. In order to comply and conform with the afore mentioned standards and provide useful financial reports, a new “Draft” Commercial Code, which was proposed in 2000 and issued for comment in 2005, will expectantly be adopted by the Turkish Parliament and take effect in 2010 (Gielen et al., 2007).
Corruption Perception Index
The Corruption Perception Index gives a score based on a perceived level of public corruption, ranking 180 different world countries. Turkey scored a 4.4 on the Corruption Perception Index, on a scale from zero to ten, with lower scores indicating more perceived corruption. Turkey’s moderate score of 4.4 ranks them as the 61st least perceived corrupted country in the world (Transparency International, 2009).
Cultural Description based on Hoefstede
Geert Hofstede scores countries on different cultural dimensions in order to give a better understanding of the culture of a particular country. Hofstede measures the dimensions of power distance, uncertainty avoidance, individualism, and masculinity within a given country (Itim International, n.d). Turkey scored high at 66 in power distance, indicating that the level of inequality in society is accepted and embraced. Turkey scored low in individualism at 37. This shows that Turkey has a more collectivist culture. Regarding masculinity, Turkey received a low score of 45. The last dimension, uncertainty avoidance, measures the tolerance of uncertainty in society. Turkey scored an 85 on this dimension (Itim International, n.d.). This high score indicates that Turkey has a stricter, more intolerant society.
Expected Accounting Values based on Gray
S.J. Gray expanded on the ideas of Hosfstede, using Hofstede’s dimensions to form additional hypothesis about a country and its accounting systems. Gray’s first hypothesis states that the higher a country ranks in individualism and the lower it ranks in uncertainty avoidance and power distance, the higher the country will rank in professionalism (Gray, n.d.). According to Turkey’s Hofstede values, the country does not fall into the professionalism category. At the other end of the spectrum from professionalism is statutory control; an idea that the people of Turkey prefer a more rule-based approach with less judgment exercised.
Gray’s second hypothesis states that the higher a country scores in uncertainty avoidance and power distance and lower it scores in individualism, the more likely the country will value uniformity. Turkey’s Hofstede values indicate that Turkey does in fact have high uniformity. According to Gray, the Turkish value a uniform and consistent approach, rather than adjusting to individual circumstances.
The third hypothesis from S.J. Gray states that a country high in uncertainty avoidance and low in individualism and masculinity will rank high in conservatism. Hofstede values for Turkey indicate that Turkey does indeed rank high in conservatism. This means that the Turkish prefer to be conservative in their measurements, allowing for an uncertain future, rather than taking an optimistic approach that may be less accurate.
Gray’s final hypothesis states that a country that is high in power distance and uncertainty avoidance and low in individualism and masculinity, is a country that is high in secrecy. Turkey is thus likely to be high in secrecy according to its Hofstede values. According to Gray, the Turkish people value confidentiality in business information.
Together, Gray’s hypothesis theorize that Turkey is a country valuing statutory control, uniformity, conservatism, and secrecy. These standards place Turkey on par with other Muslim countries in the Middle East such as Iran and Pakistan.
III. Accounting Environment
The current state of the accounting environment in Turkey is multifaceted and fragmented. This complex atmosphere makes it exceedingly difficult for organizations to comply with the proper reporting standards. Additionally, with the pending adoption of “the Draft” of the Turkish Commercial Code in 2010, organizations will soon be forced to adhere to a new set of accounting standards, International Financial Reporting Standards.
GAAP, Standards, & Laws
The Turkish Accounting Standards Board (TASB) was established by Law No 4487, and is the accounting standard setting authority in Turkey (PWC, n.d.). The Turkish Accounting Standards Board operates independently, with complete financial and administrative freedom (PWC, n.d.). The accounting standards that are produced by the Turkish Accounting Standards Board are known as the Turkish Accounting Standards (TAS) (PWC, n.d.). Although not required to do so, privately owned small and medium sized companies may issue financial statements in line with the Turkish Accounting Standards, but due to the complexity of such standards, there is no requirement to do so as with many other European Union countries (Gielen et al., 2007). Under “the Draft” of the Turkish Commercial Code, companies operating in Turkey, public or private, will be expected to comply with Turkish Accounting Standards (PWC, n.d.). The objective of this requirement is to ensure that financial statements are comparable among companies, accurate, understandable, and transparent to users, thus appealing to investors both nationally and abroad (PWC, n.d.). When passed, “the Draft” is expected to dramatically improve the financial statements issued by companies operating in Turkey (eStandardsForum, 2008).
However, “the Draft” has not yet been enacted by the Turkish Grand National Assembly (Eryurekli & Unal, 2010). Essentially, this means that companies are not currently legally required to follow Turkish Accounting Standards, and many indeed do not (eStandardsForum, 2008). Additionally, it is difficult for companies to know which standards to follow as the regulatory guidance in Turkey is extremely fragmented with various agencies issuing reporting standards for companies in their respective industries (eStandardsForum, 2008). For example, the Banking Regulatory and Supervisory Agency sets reporting standards for the banking industry, the General Directorate of Insurance sets reporting standards for the insurance industry, and the Capital Markets Board sets reporting standards for all others (eStandardsForum, 2008). The Capital Markets Board has “responsibility for monitoring and enforcing compliance with reporting requirements of market participants, except banks, insurance companies, leasing, factoring, and consumer finance companies” (Gielen et al., 2007, p. 6). However, effective as of January 1, 2005, under Communique XI-25 “Accounting Standards in Capital Markets”, companies falling under the jurisdiction of the Capital Markets Board are required to follow International Financial Reporting Standard based reporting standards, making the length to convergence less extensive (eStandardsForum, 2008). Nevertheless, there are still some differences between the requirements of the Capital Markets Board and International Financial Reporting Standards (eStandardsForum, 2008). Particularly, Communique XI-25 does not include some major recent International Financial Reporting Standard amendments and did not adhere to the proper translation process that was recommended by the International Accounting Standards Board (eStandardsForum, 2008).
The Instanbul Stock Exchange (ISE) is the principal stock exchange in Turkey (Arsoy & Gucenme, 2009). Companies attempting to trade on the Instanbul Stock Exchange must present their financial in accordance with the presentation standards of the Capital Market’s Board (Arsoy & Gucenme, 2009). The Instanbul Stock Exchange includes the National Market, Second National Market, New Economy Market, Watch List Companies Market, and Wholesale Market (Arsoy & Gucenme, 2009).
The need for “the Draft” to the Turkish Commercial Code arose after Turkey was issued a formal invitation to join the European Union in December 2004. In order to comply with European Union law or “acquis communautaire”, sweeping reforms to the Turkish accounting and financial reporting system were required. Under the Commercial Code of 1957, there are five types of business enterprises defined. The business structures are as follows: general partnerships, (Kollektif Sirket) in which partners have unlimited liability, limited partnerships (Komandit Sirket), silent partners have limited liability and active partners have unlimited liability, cooperative associations (Kooperatif Sirket), limited liability companies (Limited Sirket) comprised of 2 to 50 shareholders, manager managed, and not publicly traded, and joint stock companies (Anonim Sirket) comprised of a minimum of 5 shareholders, board structured, and publicly traded (Gielen et al., 2007).
Another change proposed by “the Draft” is that all companies have independent audits conducted according to International Standards on Auditing. The type of audit firm required is based on the size of the company, with medium to large joint stock companies required to use independent audit firms and small joint stock companies have the option to appoint two sole practitioners, YMM’s, or SMMM’s as the independent auditors. Audit firms would be required to rotate every 5 years and would be “prohibited from providing certain services, including legal and financial consulting services to audit clients” (Gielen et al., 2007, p. 11). Based on these requirements, over 700,000 companies would require independent audits (Gielen et al., 2007).
There are also new filing and reporting requirements within “the Draft”. All companies must “file their annual financial statements with the Ministry of Trade and Industry (where they will be publicly available) and publish the financial statements on the company website, in the Trade Registry Gazette, and in 2 newspapers with national circulation” (Gielen et al., 2007, p. 5). In cases where it would be imprudent to publish financial statements in their entirety in the newspaper, a summary set of financial statements may be published. This would be a huge change from the past where financial information was only available to a select few and provide the much needed transparency to comply with International Financial Reporting Standards and European Union standards (Gielen et al., 2007).
Under the Commercial Code (1957), there are guidelines for bookkeeping, but not for publication of financial statements. The Code does contain regulations regarding “auditors” (murkip) of joint stock companies and limited liability companies. Joint stock companies may only have 5 “auditors” and form a Board of Auditors if there is more than one “auditor”. If limited liability companies have over 20 shareholders, they must have at least one “auditor”. Even though the code defines these individuals as auditors, they do not have to adhere to the independence requirements of the European Union, nor is there any “licensing, qualification, or education requirements for appointment” (Gielen et al., 2007, p. 4). The current code also outlines that members of the board of directors are responsible for the financial statements and those statements must be approved by the shareholders (Gielen et al., 2007). Currently, there is no requirement for consolidated financial statements of Joint stock, limited liability, and insurance companies.
The accounting profession is regulated in Turkey and there are different educational and licensing requirements for the three categories of accountants. SM’s may not conduct audits, but “may provide bookkeeping services, prepare financial statements, and tax declarations” (Gielen et al., 2007, p. 11). SMMM’s “may conduct general audits but not tax audits and provide consulting services in addition to all the services provided by SM’s” (Gielen et al., 2007, p. 11). YMM’s “may conduct tax audits and “certify” the tax financial statements and tax returns in addition to all the services provided by SMMM’s except bookkeeping” (Gielen et al., 2007, p. 11). YMM’s also have “joint responsibility with the audited company for errors and misstatements in the financial statements they have audited” (Gielen et al., 2007, p. 11). As of 2007, there were 30,000 SM’s, 31,000 SMMM’s, and 3,500 YMM’s. (Gielen et al., 2007)
Another issue facing the accounting sector within Turkey is the extremely high inflation rates that are ever-persistent (Arsoy & Gucenme, 2009). As such, an accounting system had to be developed which would negate inflations deceptive impact (Arsoy & Gucenme, 2009). Thus, in order to prevent financial statements from being inexact, Turkey adopted inflation accounting in 2003 (Arsoy & Gucenme, 2009). Essentially, this allows companies to remove the distortions caused by inflation and present accurate financial statements (Arsoy & Gucenme, 2009).
In Turkey, there is one law that takes priority over any other accounting regulations: the Tax Procedure Law (Gielen et al., 2007). In fact, because Turkish Accounting Standards are not yet legally required, most companies only issue their financial statements in conformity with the Tax Procedure Law and the Uniform Chart of Accounts (Gielen et al., 2007). This results because, traditionally, the main reason for accountings existence in Turkey has been to provide information to local authorities (Arsoy & Gucenme, 2009). Thus, accounting in Turkish organizations often translates to tax accounting (Arsoy & Gucenme, 2009). Unfortunately, these requirements only necessitate a minimal amount of information and thus there is not sufficient information available for adequate decision making for investors and management (Gielen et al., 2007). In order to compensate, it is very common for companies operating in Turkey to run two distinct accounting systems (Kanbolat, 2008). Typically, one system is used to maintain information needed for tax purposes and the other is used for international financial reporting purposes (Kanbolat, 2008).
Cash vs. Accrual Basis
Since the International Accounting Standard 1, Presentation of Financial Statements, has yet to be formally adopted, and tax disclosure requirements are minimal, the basis of the preparation of financial statements in Turkey is often unknown (Gielen et al., 2007). However, all companies that trade on the Istanbul Stock Exchange must follow the CMB’s International Financial Reporting Standards based standards (Arsoy & Gucenme, 2009). As well-known, International Financial Reporting Standards require the use of accrual accounting.
Fair-Value vs. Historical Cost
Under the currently enacted Uniform Chart of Accounts reporting requirements, fair value reporting is not acceptable for reporting on assets and liabilities (Gielen et al., 2007). Similar to United States Generally Accepted Accounting Principles, the Uniform Chart of Accounts endorses historical cost as the basis for reporting on assets and liabilities (Gielen et al., 2007).
With the proposed enactment of “the Draft” of the Commercial Code scheduled to take place in 2010, companies operating in Turkey will then be required to follow International Financial Reporting Standards (Eryurekli & Unal, 2010). Under International Financial Reporting Standards accounting standards, companies will have the ability to choose between historical cost, current cost, net realizable value, and present value (Fay et al., 2009). International Financial Reporting Standards does not specifically mandate that a company use any one of these methods (Fay et al., 2009). Specifically, under International Auditing Standard (IAS) 16, plant, property, and equipment can be reported at either historical cost or fair value (Fay et al., 2009). Additionally, under the revaluation model, companies can choose to revalue their property, plant, and equipment using its current fair value minus accumulated depreciation (Fay et al., 2009). Once this method is chosen, companies must evaluate the assets fair value at the end of every year (Fay et al., 2009). Furthermore, IAS 39 requires loans and receivables to be recorded at their fair value (Fay et al., 2009).
International Financial Reporting Standards
When Turkish Accounting Standards Board was established, the organization adopted International Financial Reporting Standards (PWC, n.d). Turkish Accounting Standards Board understood that by adopting International Financial Reporting Standards, Turkey’s accounting standards would be compatible with the accounting standards followed by the European Union and others in the world (PWC, n.d.). This is particularly pertinent as the European Union requires all financial statements of companies listed on its stock market exchanges to be prepared following the standards required by International Financial Reporting Standards (PWC, n.d). As a result, in union with the International Accounting Standards Committee Foundation, the Turkish Accounting Standards Board prepared a translation of International Financial Reporting Standards standards and enacted that translation into Turkey’s legislation (PWC, n.d). Under the translation process, International Financial Reporting Standards are translated, reviewed by experts, and then released to the public for comment (eStandardsForum, 2008). It is anticipated that Turkish Accounting Standards Board will continue to sustain full compliance with all International Financial Reporting Standards guidance in the future (PWC, n.d). However, being that “the Draft” is not yet enacted; many companies still only issue financial reports under the requirements of the Uniform Chart of Accounts and the Tax Procedure Law (Gielen et al., 2007). Thus, the differences between the Chart of Accounts and International Financial Reporting Standards can be extensive (Gielen et al., 2007).
Additionally, Turkey faces several challenges regarding the implementation of “the Draft” Commercial Code and compliance with International Financial Reporting Standards and European Union standards. There is a shortage of currently licensed personnel required to perform the necessary independent audits that will be required under the new regulations. There is also a knowledge gap in the education system – professors and educators will need to be well versed in the International Financial Reporting Standards and “the Draft” Commercial Code regulations. Current and future practitioners will need to have continuing education as required by IFAC’s IES 7. The current regulatory and licensing body in Turkey, TURMOB will have to ensure that these educational opportunities are available.
IV. Legal Environment
Legal System
The legal system in Turkey is based on Swiss Civil Code, the Italian Penal Code, and the Swiss Code of Civil procedure. In the Constitution, it states that “the republic of Turkey is a democratic, secular and social state governed by the rule of law, bearing in mind the concepts of public peace, national solidarity and justice respecting human rights, loyal to the Ataturk nationalism and based on the fundamental tenets set forth in the Preamble” (Tuncay, 2005, p.243). The legal system in Turkey includes both ordinary courts and high level courts. It consists of four courts: Constitutional Court, Judicial Court, Administrative Court, and Military Court.
Constitutional Court
Constitutional Court is the supreme court of Turkey’s legal system. This court is responsible for reviewing the laws and decrees passed by the President or the National Assembly and disposing those which are against the Constitution (Tuncay, 2005). Decisions made by the Constitutional Court on those laws and decrees are final, and a majority of all of its members must vote for it for the decision to be settled (Metz, 1995).
Judicial Court
The Judicial Court is the largest court of Turkey’s legal system. It deals with both civil and criminal matters. The criminal court handles matters including criminal offences, fines, and punishment and the civil court handles matters related to civil laws and conflicts between citizens (Tuncay, 2005). The criminal court consists of three parts: peace criminal, first instance criminal, and heavy criminal courts. The civil court consists of two parts: peace court and first instance courts. Both criminal and civil courts are ordinary courts, handing conflicts that are stated in the laws (Tuncay, 2005). Assuming citizens appeal the decisions made by these two courts, they are reviewed by a higher level court called the Court of Cassation (Tuncay, 2005). This review happens regardless if the matter is criminal or civil or arising from a peace court, first instance court, first instance criminal court, or heavy criminal court. No intermediate instance courts exist in Turkey’s legal system (Tuncay, 2005). Each year, all the appeals are sent to the Court of Cassation and, as a result, they are completely overburdened with work (Metz, 1995).
Administrative Court
The Administrative Court consists of two courts: Council of State and first instance court (Metz, 1995). Council of State is a higher level court, reviewing the decisions made by the first instance courts, and handling some original disputes related to administrative laws. The Council of State also examines and gives opinion on draft regulations or decrees which are submitted by the Council of Ministers and the Prime Minister (Metz 1995).
Military Court
Military Court deals with matters involving military personnel such as military criminals and discipline offences (Metz, 1995). However, there is an exception to this rule. Under martial law, if one citizen is accused of terrorism or any crime against the state, military court can still exercise jurisdiction over it (Metz, 1995). In the military court system, there are first instance military and security courts, a Supreme Military Administrative Court, an appellate State Security Court, and the Military Court of Appeals (Metz, 1995). The Military Court of Appeals is the first and last instance court, supervising disputes and appeals involving military personnel. All decisions made by this court are final (Metz 1995).
Corporate Law – Rules and Regulations
The two most important laws concerning commercial activities in Turkey are the Turkish Commercial Code and Act of Debt. The Turkish Commercial Code consists of five parts of rules which govern those activities concerning traders, companies, legal instruments, insurance, land transport, and sea transport (Nedim et al., 2008). Another law under the Commercial Code is the Law on Capital Market. This law regulates all company transactions that are related to capital markets and stocks such as how companies should conduct initial public offerings (IPOs), and how shares are to be offered, bought, and transferred (Nedim et al., 2008). The Act of Debt is contract law, regulating all the activities concerning every area of contract including how a contract is formed, abolished, what kind of contract is invalid, and why it is invalid (Nedim et al., 2008).
Corporate Law – Shareholders and Share Capital
As previously mentioned, based on the Turkish Commercial Code, companies can be formed in six types: commandite company, collective company, limited company, joint stock company, joint venture, and ordinary partnership (Nedim et al., 2008). Partners in companies which are formed as ordinary partnerships or collective companies are responsible for all assets, liabilities and equity of the company (Nedim et al., 2008). In companies formed as joint stock companies and limited companies, shareholders are only responsible for debt that is equal to or less than their share of capital (Nedim et al., 2008). There is one exception: public debts such as federal or state tax and debts which shareholders take personal guaranty (Nedim et al., 2008). For companies which are formed as limited companies, the minimum number of partners is 2, and the maximum is 50 (Nedim et al., 2008). The minimum share capital is 50,000 YTL which equals to 25,000 Euro. Joint companies, under the Commercial Code, are required to have at least 5 shareholders (Nedim et al., 2008). The least amount of share capital that is required by the Code is 50,000 YTL equivalent to 25,000 Euro (Nedim et al., 2008). Cash capital is not a requirement. The capital can be in other similar forms but it must have a measurable value (Nedim et al., 2008). For example, stock which has a readily ascertainable fair market value (Nedim et al., 2008). The one exception is banks and insurance companies; they must have cash capital (Nedim et al., 2008).
Law of Foreign Corporations
There are two ways which companies can do business in Turkey. The first way is that a foreign company can appoint an agent who is authorized to act on behalf of the company (Ansay, 1966, p. 39-40). The alternative is that the foreign company sets up a Turkish branch which is authorized to do business for the company (Ansay, 1966, p. 39-40). The law requires a foreign company to acquire a government license (Ansay, 1966, p. 39-40). Without a government license, punishment will be imposed and the agent or branch will be forced to close (Ansay, 1966, p. 39-40). The agent who works on behalf of a foreign company is responsible for the acts of the company (Ansay, 1966, p. 39-40). A branch generally means a permanent entity which has separate assets and liabilities and does business independently, although it is governed by a parent company in some capacity (Ansay, 1966, p. 39-40). The Commercial Code requires the Turkish branch to register in the commercial register and its trade name must show the location of the branch (Ansay, 1966, p. 39-40). Either a Turk or a foreigner can operate the Turkish branch, but it is required that both own a house in Turkey (Ansay, 1966, p. 39-40). Agents or branches are governed by the Turkish courts and must follow all Turkish laws (Ansay, 1966, p. 39-40). Regarding the nationality of a branch, the Turkish branch has the same nationality as its parent company (Ansay, 1966, p. 39-40).
It is important to point out that under Article 15 of the Law of Foreign Corporations; companies which perform their main business in Turkey are required to form a Turkish company (Ansay, 1966, p. 39-40). Otherwise, the company will be forced to stop doing business in Turkey (Ansay, 1966, p. 39-40). At a minimum, five incorporators are needed to form a Turkish subsidiary (Ansay, 1966, p. 39-40). Turkish nationality is a requirement, and the nationalities and residences of those incorporators are required to be stated in application to the Ministry of Commerce (Ansay, 1966, p. 39-40). It is extremely hard to control the nationalities of shareholders after the Turkish subsidiary is established because Turkey permits those subsidiaries to issue shares in its stock market, and there is no requirement on the nationalities of shareholders in Turkey (Ansay, 1966, p. 39-40).
Property Rights
Based on the property rights index published by the Global Property Guide, Turkey ranks 30th among 41 countries, signifying that the property rights established in Turkey are not well protected. In recent years, the real property laws have developed a lot as it makes the country a more attractive market for investment. Under the Constitution of Turkey, there is no distinction between Turkish and foreign, or natural and juridical, persons with respect to ownership and inheritance of personal property in Turkey.
Real Property
The owner of real property has the right to use and dispose of their real property at their own discretion (Gunal & Canko, 2010). People can acquire the ownership of real property by registering with a title deed registry (Gunal & Canko, 2010). If the real property is inherited from others, the ownership is gained before registration with a title deed registry (Gunal & Canko, 2010). The scope of real property includes the space and layers above and under the land, to a reasonable extent (Gunal & Canko, 2010). Buildings, plants, and water sources are also included in the acquisition of land if they exist when the land is acquired, but some legal restrictions and restraints may also apply, which might limit the use of buildings, plants, and water sources (Gunal & Canko, 2010). Air space, mountains, seas, and lakes are not included in the real property (Gunal & Canko, 2010). Therefore, when the real property is acquired, no ownership on those items is included (Gunal & Canko, 2010). Moreover, under Constitution and Mining law, only the State has the right to dispose minerals that are within the boundaries of Turkey (Gunal & Canko, 2010).
Ownership acquired by foreign people or companies is governed by the reciprocity principle in Turkey (Gunal & Canko, 2010). The reciprocity principle states that citizens in other countries that allow Turkish citizens to acquire property are allowed by Turkish government to purchase property in Turkey (Gunal & Canko, 2010). Citizens in those countries such as most European Union countries, the United States, and Canada can invest in real property at their desire in Turkey (Gunal & Canko, 2010). However, there are also some restrictions which might apply when foreigners purchase real property in Turkey (Gunal & Canko, 2010). For example, foreigners cannot purchase real property in cities or towns where the inhabitants total less than 2000 (Gunal & Canko, 2010). Additionally, foreign citizens are prohibited from buying properties in military areas (Gunal & Canko, 2010). In Turkey, it takes a total of nine days to complete the whole process of purchasing and registering real property, and the Turkish government usually takes 3-9 months to examine the registration and give the title for real property (Global Property Guide, 2007).
Industrial Property
The Turkish government has improved its legal system to protect industrial property rights such as trademarks and patents (Seglam, 1998). In 1994 and 1995, 2 laws, 6 decree laws, and 5 regulations were passed and entered into force (Seglam, 1998). In 1994, the Turkish government also established a specific governmental institution, the Turkish Patent Institute, for the administration of industrial property rights (Seglam, 1998). This institution has several responsibilities including: performing registration according to laws of industrial property rights, being a mediator in industrial property disputes, handling license transactions, dealing with registration of license agreements and assignment transactions, supervising the use of invention, and coordinating with similar international institutions (Seglam, 1998). Through the establishment of this institute, the Turkish legal industrial property system was strengthened, covering areas such as patents, trademarks, and industrial designs (Seglam, 1998). The Turkish Patent Institute will ensure the protection of industrial property rights in Turkey, which is the paramount function of this institute (Seglam, 1998). The institute will also provide information about national and international documents and conduct research concerning industrial property (Seglam, 1998).
Trademark
Under the Trademark Law in Turkey, natural or legal persons who have residence, industrial, or commercial establishments within the territory of the Turkey fall under the protection of the Trademark Law (Turkey Trademark Law, 1995). For persons who derive their rights from the Paris or Berne Conventions or the Agreement forming the World Trade Organization, protection is also available (Turkey Trademark Law, 1995). Turkish trademark rights are acquired by registering with a specific legal department and it can be in the form of any sign such as words, numerals, or designs (Turkey Trademark Law, 1995). Under the Trademark Law, the owner of a trademark is entitled to prevent third parties from using it without authorization (Turkey Trademark Law, 1995).
Patents
The Decree Law No:155 regulates and protects patent rights in Turkey (Seglam, 1998). This law includes many modern provisions (Seglam, 1998). Once the patent is registered, a model certificate will be granted (Seglam, 1998). Examination is not necessary for granting patents (Seglam, 1998). Criteria such as originality, creative step, and industrial use will all be considered for patentability (Seglam, 1998). Applications are published and third parties are prohibited from using registered patents (Seglam, 1998). Non-examined patents last for 7 years, utility models 10 years, and examined patents 20 years, all starting from the date of application (Seglam, 1998).
Industrial design
Decree Law No:554 protects Industrial Designs (Seglam, 1998). The protection of industrial designs is based on protecting registered designs. Similar to patents, examination is not required for registration (Seglam, 1998). The registration process is enforced by the Turkish government, and is similar to the processes in many European Union countries (Seglam, 1998). Modern provisions are stated under the Decree Law such as registered design system, non-examination system, publication of designs, and 5-year protection which can be renewed up to 4 times (Seglam, 1998). Under Turkish Design Protection System, only the person who is granted with design right can have exclusive rights with the use of the design. Third parties, without the authorization of the holder, cannot produce, sell, import, or export the products in which this design is used (Seglam, 1998).
V. Potential Application of the Base of the Pyramid Protocol
The “Base of the Pyramid Protocol” has a number of interesting potential applications to Turkey. Prahalad includes Turkey as contributing to the base of the pyramid. “China, India, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa, and Thailand [are collectively] home to about 3 billion people, representing 70 percent of the developing world population” (Prahalad, 2005, p. 10). However, the CIA World Factbook classifies Turkey as a developed country (CIA, 2010).
Currently, Turkey has a 17.11% poverty rate (CIA, 2010). This is slightly higher than the United States, whose poverty rate is 12%. Though Turkey’s poverty rate it is not nearly as high as countries such as South Africa, which have rates upwards of 50%. Additionally, Turkey has the 15th largest GDP-PPP, and the 17th largest nominal GDP (World Bank, 2010). Additional sources also differ regarding where Turkey is considered to be on “the pyramid”. Accordingly, Turkey would likely be considered to be somewhere in-between the middle and the base of the pyramid. Throughout its history and numerous economic swings in recent years, Turkey is positioning itself to be globally involved and integrated. The nation is well positioned to reach out to the base of the pyramid in other countries as well as serve its own population that is in the base of the pyramid.
There are numerous ways in which Turkey is positing itself to be able to reach out to the base of the pyramid. Currently, the country has several multinational corporations that are potential candidates to lead this initiative. Geographically, Turkey is in a great position to reach out to a large percentage of the population at the base of the pyramid including people located in Africa, Eastern Europe, the Middle East, and Western Asia. Turkey’s history of starting at the base of the pyramid and moving up the pyramid through economic development will encourage others do that same. However, due to Turkey’s inexperience in reaching out to the base of the pyramid, it would be optimal for Turkish multinational corporations to start by working with other multinational corporations in the both the pre-field and in-field processes in order to increase their success rate (Simanis & Hart, 2008).
Turkey is currently trying to hold onto the economic gains it has been experiencing and also attract fresh foreign investment (Economist Intelligence Unit, 2008). For example, Greece recently bought the Turkish operations of Finansbank in August 2006 (Finansbank, 2008). This is a significant transaction as Greece and Turkey historically have had bad relations. Additionally, this transaction makes Greece the largest player in the banking industry in Turkey. As previously mentioned, Turkey is also in negotiations to become part of the European Union, the process of which is expected to last about a decade (Barroso, 2006). Assuming that this endeavor is successful, Turkey will further increase its chances of moving up the economic pyramid and thus be better equipped to aid those at the bottom.
Lastly, it is important for multinational corporations to not focus solely on exporting goods and services out of Turkey, as this could lead to excess capacity and contribute to global deflation (Hart, 2009). This appears to have already been recognized in Turkey as the country is growing in both imports and exports as it becomes more involved with the world economy. As Turkey further opens up its boarders and expands its global network, it will further attract multinational corporations which will be able to reach those at the base of the pyramid.
VI. Impact of Globalization
Economic Development
Turkey is consistently making a concerted effort to become a successful member of the global marketplace. Although the country has made huge strides in recent years to leverage its marketability, the country has still has several inherent issues that are hindering its economic development.
The country of Turkey lacks a substantial amount of natural resources (Ercel, 2006). In fact, up until the late 1970s, the country’s economy was driven by the concept of import-substitution (Ercel, 2006). In the 1980s, Turkey underwent a major economic reform (Yalcinkaya, n.d). A crucial result of this reform was the practice of free trade (Ercel, 2006). Since then, Turkey has experienced several periods of both significant economic growth and downturns (Ercel, 2006). The country has struggled to sustain the high levels of economic growth experienced in the late 1980s (Ercel, 2006). As a developing country, Turkey has had an extremely difficult time attracting a large amount of foreign direct investment (Ercel, 2006). Primarily, this is due to the fact that there are many political uncertainties surrounding the country, and there is little belief in the country’s legal system (Ercel, 2006). Additionally, the fundamental characteristics on which Turkey’s economy is based are vastly different than those required by a global marketplace (Yalcinkaya, n.d). Principally, Turkey’s economic system is closely linked to its social structure which is built on personal relationships, a practice that is difficult to maintain in the global marketplace (Yalcinkaya, n.d). This cultural practice has also created resistance to the transnational corporations that operate in Turkey (Yalcinkaya, n.d).
Transnational corporations have been a major player in the high-profit industries of the Turkish economy including banking, insurance, and retail (Yalcinkaya, n.d). Bringing these well-known organizations and franchises to the country greatly expand the job opportunities available to the people. However, they also limit the opportunities available for many local businesses in Turkey (Yalcinkaya, n.d). Additionally, most of these corporations are the results of acquisitions and thus little new investment is brought to the country (Yalcinkaya, n.d). However, Turkey has recently taken a major step in making itself more lucrative for attracting more foreign investment.
For some time, Turkey has been working to make itself a more globalized nation by partaking in discussions with the European Union about joining (Ercel, 2006). By joining the European Union, Turkey would be able to greatly reduce its economic uncertainties, and become a more stable global market economy (Ercel, 2006).
Offshoring
As markets expand and competition goes global, there is rising pressure on companies to reduce costs in order to remain competitive. An increasingly common way of reducing costs is to outsource jobs to locations with cheap labor rates. The practice of offshoring is extremely controversial. By nature, offshoring takes jobs from the home country, causing many people to be displaced. However, offshoring is very effective at brining economic development to the destination country, as can be seen by looking at the countries of China and India (Erdilek, 2007). Though, as China and India become more developed, their labor rate increases and companies are turning to other nations for their labor needs (Erdilek, 2007). Unfortunately, in its current stages, Turkey is not one of those nations (Erdilek, 2007).
The Global Services Location Index issued by A.K. Kearney and written by consultant Johan Gott, ranks the attractiveness of the top 50 countries for outsourcing purposes (Erdilek, 2007). The GSLI gives each country a comprehensive score based on their financial attractiveness, people and skill availability, and business environment (Erdilek, 2007). Turkey was ranked 49th on the list in 2007 (Erdilek, 2007). Consequently, Turkey has several issues that must be addressed before the country is to become a viable outsourcing location (Erdilek, 2007). However, their total score did improve in 2007 as compared to previous years, and expectantly it will continue to do so in the future so that Turkey can experience the rapid economic development associated with becoming an outsourcing destination location (Erdilek, 2007).
Crime
Globalization would not be possible without free trade among nations. Unfortunately, there are a significant number of drawbacks to free trade. Namely, by opening up a nation’s borders to the international markets, transnational organized criminal activity is inevitable (Ministry of Foreign Affairs, n.d.). The new transportation gateways that are unveiled by globalization allow criminals to trade illicit goods with untapped markets and bring goods to consumers anywhere in the world (Ministry of Foreign Affairs, n.d.). In fact, organized crime is one of the principal threats to global security (Ministry of Foreign Affairs, n.d.). Essentially, the only way to contest this highly sophisticated and rapidly growing industry is through international cooperation of nations (Ministry of Foreign Affairs, n.d.).
Primarily, Turkey is a crucial gateway for illicit drugs, particularly heroin, flowing from Southwest Asia to Western Europe and the United States (CIA, 2010). Furthermore, in more remote areas of Turkey, there is an issue with laboratories that transform morphine into heroin (CIA, 2010). Additionally, money laundering is quite easy in Turkey, as there are minimal controls preventing it from taking place (CIA, 2010).
Turkey has actually been quite successful in opposing drug trafficking and organized crime in its nation (Ministry of Foreign Affairs, n.d.). In 2000, with the support of the United Nations Office on Drugs and Crime, Turkey established the Turkish International Academy Against Drugs and Organized Crime (Ministry of Foreign Affairs, n.d.). Turkey hopes that by enlisting international support the country will be better equipped to fight organized crime (Ministry of Foreign Affairs, n.d.). Additionally, Turkey is also participating in other regional efforts including the Stability Pact, the South East European Cooperative Initiative, the Black Sea Economic Cooperation, and the Agreement on Cooperation between the European Police Office and the Republic of Turkey (Ministry of Foreign Affairs, n.d.).
Natural Resource Depletion
Although Turkey innately lacks a considerable amount of natural resources, the resources that it does have are very important to the world’s viability (World Bank, n.d.). In fact, Turkey has some of the most crucial genetic plant species in the world (World Bank, n.d.). Due to Turkey’s geographical locations, its plants have genetically superior characteristics (World Bank, n.d.). Plant breeders from all around the world use the unique plant species found in Turkey to develop genetically superior plants (World Bank, n.d.). However, due to the effects of globalization, many of these plants are now at risk (World Bank, n.d.). Therefore, the World Bank implemented a five-year project costing approximately $5.7 million aimed at slowing degradation of plants in Turkey (World Bank, n.d.).
Human Resource Abuse
One of the major problems associated with the globalization of the world’s markets is the concept of human trafficking or what has come to be known as “modern-day slavery” (Eyrice & Dolek, 2008). Consumers from all around the world are privy to this issue as, at some point, we have all most likely purchased products made from the hands of an individual that has been trafficked (Eyrice & Dolek, 2008). The UN Global Initiative to Fight Human Trafficking lists the reasons for the supply of human trafficking to include: poverty, illiteracy, lack of employment opportunities, regional imbalances in socio-economic development, the societal/domestic factors that establish discriminatory practices against women, the relaxation in border control mechanisms due to the increased complexity of the relations in the globalization age, the increased need for cheap labor, and civil war/ethnic conflicts (Eyrice & Dolek, 2008).
Turkey is a major destination for people that have been trafficked (Eyrice & Dolek, 2008). In fact, there are approximately 1.2 million people in Turkey that are classified as internally displaced persons (IDPs) (CIA, 2010). Many Iraqi women whom are trying to escape from the Iraq War are trafficked to Turkey (Eyrice & Dolek, 2008). Turkey is also a main destination spot for women and children that are being trafficked from countries in the former Soviet Union (Eyrice & Dolek, 2008). Thus, the number of immigrants looking for work has dramatically increased in the last decade (Yalcinkaya, n.d). In fact, the entire labor market in Turkey has become very unofficial (Yalcinkaya, n.d). As a result, the labor market is extremely unstable and workers are constantly displaced (Yalcinkaya, n.d). The end result is a high level of unemployment and a low wage rate (Yalcinkaya, n.d).
VII. Impact of NGOs, IMF, UN, WTO, and World Bank
Nongovernmental Organizations
Nongovernmental Organizations have been expanding rapidly in Turkey in that past ten years (Kamp, 2009). There is now estimated to be over 150,000 NGOs in Turkey (Kamp, 2009). Many experts agree that the widespread establishment of NGOs is effectively contributing to the openness of Turkey’s society (Kamp, 2009). The range of NGOs in Turkey is widespread and extensive. The prominent NGOs include: The Human Rights Associate (IHD), Women for Women’s Human Rights (WWHR), the Women’s Consultation and Solidarity Center (KAMER), the Lambda Instanbul Association, the Turkish Foundation for Reforestation, Protection of Natural Habitats and Combating Soil Erosion (TEMA), the Humanitarian Aid Foundation (IHH), and numerous others (Kamp, 2009).
International Monetary Fund
As of 2003, Turkey’s economy had received more money from the International Monetary Fund and the World Bank than any other country (Rosett, 2003). Approximately $30 billion dollars in funding has been approved by the International Monetary Fund for use by Turkey since 1999 (Rosett, 2003).
In more recent months, Turkey has refused to accept money from the International Monetary Fund it once thought it desperately needed (Strauss, 2010). Apparently, the country is currently doing well economically, despite the world’s financial crisis, and no longer feels that it needs the assistance of the IMF (Strauss, 2010). However, several economists are weary of this decision recognizing that it will put intense pressure on Turkey to maintain a stable economy and leave little room for fiscal mistakes by the government (Strauss, 2010). Additionally, now that Turkey has refused the help of the IMF, the organization will likely be more hesitant to help the country in the future times of stress (Strauss, 2010).
United Nations
The United Nations has done a significant amount of work over the past 50 years in order to support the country of Turkey (United Nations, 2007). The United Nations has stated that is primary goals in Turkey include, “supporting democratic and sustainable environmental governance, reduction of poverty and provision of basic social services, and the promotion and protection of rights of women, children, and youth” (Today’s Zaman, 2007, p. 1). In order to facilitate these goals, the UN currently has twelve agencies operating in Turkey (United Nations, 2007). These twelve agencies include: “Food and Agriculture Organization (FAO), International Labour Organization (ILO), International Organization for Migration (IOM), United Nations Development Programme (UNDP), United Nations Population Fund (UNFPA), United Nations High Commission for Refugees (UNHCR), United Nations Information Centre (UNIC), United Nations Children’s Fund (UNICEF), United Nations Industrial Development Organization (UNIDO), United Nations Office for Drugs and Crime (UNODC), World Food Programme (WFP), and World Health Organization (WHO)” (Today’s Zaman, 2007, p. 1). These agencies do a considerable amount of work to ensure the wellbeing of the people of Turkey and their involvement is crucial to Turkey’s success.
World Trade Organization
Turkey became a member of the World Trade Organization on March 26, 1995 (World Trade Organization, 2010). The country had its last trade policy review in December of 2007 (World Trade Organization, 2010). In 2010, Turkey’s contributions to the World Trade Organization totaled a little less than 1% of the organization’s total budget (World Trade Organization, 2010). As of June 30, 2009, there were 42 outstanding notifications in the WTO’s central registry concerning Turkey (World Trade Organization, 2010). Additionally, there were between 2 and 8 requests for consultation regarding Turkey, and 1 to 2 original panel and appellate body reports (World Trade Organization, 2010).
World Bank
As of 2003, the World Bank had loaned approximately $7 billion dollars to Turkey since 1999 (Rosett, 2003). More recently, following Turkey’s devastating economic crisis in the early years of the twenty-first century, the government of Turkey enacted a program designed to reform the country’s economy (World Bank Group, 2001). The World Bank has been supporting Turkey in this reorganization process by offering funding through loans, and assistance in the form of advice (World Bank Group, 2001). In fact, the World Bank actually completely modified the program in 2001 in response to changing circumstances (World Bank Group, 2001). In total, the World Bank’s CAS Update to Turkey’s economic reform included $2.45 billion dollars in available funding for Turkey (World Bank Group, 2001). As such, Turkey is considered one of the World Bank’s largest customers (Rosett, 2003).
VIII. Conclusion
As demonstrated, Turkey is a dynamic country that plays a crucial role in the world’s success, both economically and culturally. From its ancient history originating in the Ottoman Empire, to its modern day endeavors, Turkey remains a motivated nation, consistently trying to improve its economic status and positioning in the world’s markets by becoming a globally trading nation. Recently, this has been confirmed through Turkey’s attempts to gain membership in the European Union, and the proposed enactment of “the Draft” to the Turkish Commercial Code which will require International Financial Reporting Standards to be uniformly required. By accomplishing these tasks, Turkey will further expand its global reach and become an even more prominent power in the world’s economic and social structure.