Than Meets the Evil Eye
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MORE THAN MEETS THE EVIL EYE Business Practices and Constraints of SMEs in Turkey Sarah Willis-Ertür Jennie Vader CONTENTS About 4 Credits 5 Executive Summary 6 Introduction 10 Ambiguous Position in the Global Market 12 SME’s Could Decide Turkey’s Future 15 Methodology 16 Participant and Region Selection 18 Challenges and Limitations 19 Stakeholders in the Turkish SME Landscape 20 Findings and Analysis 24 Strategy and Planning 26 Human Capital 30 Financing 38 Competitiveness 48 Conclusion 54 Appendix 1: Interview List 56 Appendix 2: SME Offerings by Major Turkish Banks 58 Appendix 3: Endnotes 62 Appendix 4: Bibliography 64 Acknowledgments 67 2 MORE THAN MEETS THE (EVIL) EYE BUSINESS PRACTICES AND CONSTRAINTS OF SMES IN TURKEY 3 ABOUT CREDITS The Institute IBGC-MasterCard Authors Research Assistants for Business in the Fellowship Sarah Willis-Ertür Jennie Vader Mert Özer Global Context Abid Emre Koruk Since 2009, the Institute for Business in the Sarah Willis-Ertür worked for over four Jennie Vader has a bachelor’s degree Global Context at The Fletcher School and years in Germany and Turkey for private from Colorado College in International MasterCard’s Center for Inclusive Growth sector and nonprofit organizations. She Political Economy and a master’s degree have collaborated to pioneer new models and has a bachelor’s degree from the from The Fletcher School of Law and Advisory Team experiential learning in international business University of Minnesota-Duluth in Diplomacy at Tufts University, where she Faculty Advisor through collaborative research projects. German Studies and International focused on the Design, Monitoring, and The Fletcher School’s Institute for Business Studies. Most recently, she completed Evaluation of International development Kim Wilson in the Global Context (IBGC) was founded The IBGC-MasterCard Research Fellowship her master’s at The Fletcher School of programs. She also has experience in Institute of Business in the Global Context in recognition of the need for a new in Inclusive Growth offers the unique Law and Diplomacy at Tufts University, macroeconomic analysis, particularly in approach to the study of international opportunity to engage exceptional Master’s where she concentrated on development Eastern Europe and Central Asia, and Editor business and capital markets—one that candidates in cutting-edge research in economics and market-based previously lived for over a year in prepares global business leaders with frontier markets, on issues related to inclusive Jamilah Welch approaches to human and economic Kazakhstan. Jennie now works at Project essential “contextual intelligence.” growth and business. This program supports Institute of Business in the Global Context research innovation, allowing students to development. Sarah currently works as Concern International as an Associate Through four core activities—research, push beyond the scope of traditional market an International Associate on the Technical Advisor for the organization’s dialogue, education, and lab—the Institute research by engaging high-touch, in-field Mediterranean team at the Clinton Women Empowered initiative. provides an interdisciplinary lens through methods to uncover important aspects of Global Initiative in New York City. which global markets and the underlying industry or economic development in the drivers of change can be understood. IBGC’s emerging and frontier economies. Inclusive Growth Initiative aims to explore the potential trade-offs and innovations This report is the result of this innovative needed to disrupt classical business and collaboration. economic frameworks and create truly sustainable prosperity for individuals, communities, and private enterprise. MasterCard Center for Inclusive Growth The MasterCard Center for Inclusive Growth was created to foster collaborative relationships between academia, governments, nonprofits, the social design community, and the private sector. Through the advancement of research and strategic philanthropic investments, the Center will support and enable those historically excluded from financial services and serve as a catalyst for change. 4 MORE THAN MEETS THE (EVIL) EYE BUSINESS PRACTICES AND CONSTRAINTS OF SMES IN TURKEY 5 As Turkey continues to define itself as an Turkish SMEs have the potential to make in-depth interviews with participating emerging market, negotiating its position significant contributions to gross SMEs and 15 interviews with expert between Europe and the Middle East, domestic product (GDP), to create jobs stakeholders and financial service EXECUTIVE SMEs will prove to be a very important for an underutilized and growing labor providers illuminated the following key and strategic sector. force, and to nudge Turkey’s current insights: categorization as an efficiency-driven Having built its current growth story on economy toward the next stage as an An overall lack of strategy and domestic consumption and portfolio innovation-driven economy. However, in planning preclude many SMEs from SUMMARY investment, Turkey has yet to sufficiently order for SMEs to play a greater role in thriving. leverage its prolific SME segment for the Turkish economy, some key future growth. This issue is now Despite various motivations for starting constraints need to be overcome. incredibly significant, as recently elected or running a business, owners and Turkey has a window of opportunity to facilitate progress and President Recep Tayyip Erdogan and his While financial service providers and managers lacked formal business plans ruling Justice and Development Party public organizations have placed a and/or well-devised strategies to help growth in established small and medium-sized enterprises (AKP) have established ambitious goals greater emphasis on providing achieve business goals. Moreover, the aimed at dramatically improving Turkey’s specialized products and services to the family-run nature of many SMEs means (SMEs) and leverage their success to propel Turkey’s economy. position in the global economy by the SME segment, businesses still face most owners and managers do not have Republic’s 100th Anniversary in 2023. significant constraints in accessing the necessary training or expertise to With these goals in place, Turkey has a finance, effectively utilizing human make strategic decisions in human window of opportunity to facilitate capital, and enhancing competitiveness. capital and financial management, progress and growth in established further inhibiting them from Thus, these challenges prevent the SMEs and leverage their success to professionalizing. existing “solutions” from truly unlocking propel Turkey’s economy. the potential of SMEs to fuel Turkey’s The overall lack of strategy and planning economic growth. More than 30 implies a failure to properly allocate 6 MORE THAN MEETS THE (EVIL) EYE BUSINESS PRACTICES AND CONSTRAINTS OF SMES IN TURKEY 7 resources in terms of reaching target being perceived as high-risk investments A variety of private and public sector customers, hiring qualified human and contributing to a distrustful solutions may help to push Turkey up capital, and preparing for future relationship, ultimately harming both the global value chain and towards its challenges and opportunities, among banks and businesses. 2023 goals. other things. In order to effectively Moreover, cash flow management was A necessary prerequisite for leveraging expand or enter new markets, Turkish another commonly cited challenge for the full potential of Turkish SMEs is to SMEs will need to increase knowledge business owners and managers who improve professionalism, especially in about and use of business plans and struggle to collect payments and to deal managers and owners. For its part, the strategies. with the system of long check maturities. public sector can diminish institutional Increased access to capital, particularly barriers obstructing cash flow, in The supply of qualified human capital to long term financing, could help SMEs addition to continuing, enhancing, and and the ability for SMEs to attract invest in expansion and enhanced increasing awareness of public SME talented employees is a significant competitiveness, but access to capital support institutions such as the state challenge. will not likely improve until there are employment agency and the credit 72% of respondents cited finding or some gains in professionalization – thus, bureau. Financial service providers can hiring employees as one of their greatest financing alone will not be the magic provide more guidance and transparency challenges and many reported a gap bullet to SME success. to SMEs, potentially by expanding the between the skill levels currently role of relationship managers (RM), available in the workforce and their Increased self-awareness about a among other things. employment needs. given SME’s position in the market, in Similarly, experienced business owners addition to increased knowledge about Overall, business owners complained can mobilize forces to serve as “SME how to export to new markets and slightly more frequently about their Ambassadors”, acting as role models invest in R&D and market research will ability to find skilled workers than with helping others tap into foreign markets, help SMEs thrive. unskilled workers. Well-placed, qualified create business plans, expand their talent will be an important step in The majority of participants spoke businesses, and more. Lastly, SMEs moving Turkish SMEs to the next level. vaguely about their competitors