Business Strategy and the Economic Environment of Business Zorlu Group Essay

The Market Situation amidst Globalisation

The Zorlu Group operates in an international environment. It is much affected by the rising tide of intense globalisation. The success of this group of companies is its adherence to the philosophy of successful international human resource management, which has become an international emerging phenomenon in business.

Globalisation is one of the key drivers to this trend. The term globalisation has a wider meaning; it involves many fields of knowledge to include economy, business, science, medicine, and many more. Globalisation is the advancement in technology, for instance the Internet and, subsequently, Information Revolution. We can now connect and conduct business with the rest of the world so easily.

Globalisation is characterised by mergers and acquisitions of industrial, commercial and financial companies, leading to an increase in the global role of large, multinational companies and to a lessening of the role of nation-states. (Bairoch, 2000, p. 197)

This is what has happened to the Zorlu Group. It started as a family-owned business in Turkey. The owner Mehmet Zorlu maintained a steady growth in the company which started as a textile company, and incorporated in it a culture of quality, integrity and perseverance.

Globalisation has widened the business arena or the playing field for the Zorlu Group. Connell (2007, p. 12) says that “Contemporary business ideology pictures globalisation as a galloping homogenization of the world in which all now participate on equal terms”.

Globalisation is also seen as a “little more than an expression of capitalist ideology” (Ferguson, 1992, cited in Bartelson, 2000, p. 181). Capitalists play a major role in a free trade with minimal intervention from governments of nations. The governments of these nation-states are part of the global world itself.

Economists define globalisation as the “international economic integration that can be pursued through policies of ‘openness’, the liberalization of trade, investment and finance, leading to an ‘open economy’” (Van Der Bly, 2005, p. 875).

The theoretician Giddens (1990, p. 64, cited in Raab et al, 2008, p. 597) defines globalisation as “the intensification of world-wide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa.” This is stating the existence of the global world which can be interpreted as the virtual world.

The ‘old world’ is now dominated by information and communication structures brought about by technology and the internet. The ‘world of objectives’ is gradually replaced by ‘a world of signs’ (Bartelson, 2000, p. 189). This is the age of the digitisation of the world. In globalisation, nation states have lesser roles or in the words of Bairoch (2000), “the diminution of the role of states”.

The phrase term global village has become synonymous with the world we live in. Many authors and scholars would like to express it as saying that the world is now living in a global village, narrowed down or has been made small (but limitless) by the interconnectedness of things because of computers, the internet or the World Wide Web.

Communication and the conduct of business can now be made possible to anyone anywhere for as long as he/she has a computer.

Some of the internal factors that influence decision making in an organisation operating internationally are the senior managers’ psychological make-up, the organizational strategy, resources, organisational history, policies and systems, and organisational culture, among others.

There are other environmental factors that include labor markets, the national, regional, and world economies, financial markets, ethical and religious systems, factors in the green environment, and other industry interests.

A study by Hofstede (1980, cited in Franke et al, 2002, p. 5) revealed that some aspects of national culture are associated with economic growth.

Privatisation and Liberalisation in Turkey

Privatisation means the sale of government-owned enterprises such as oil refineries, telephone companies, airlines, and utilities. It refers to providing public services or even goods.

Governments usually act on privatisation on certain public service areas, purposely to acquire and raise funds and improve the services of these public services. Other services that can be opened for sale by the government include fire protection, jails, schools, waste collection and disposal. (Shanoff, 2001, p. 20)

Privatisation advocates in Turkey believe that government services could be delivered at lower cost and with quality by private firms which are more responsive to the demands of the industry and the consuming public.

Shanoff (2001) says that the “public sector, which allegedly is sheltered from the ‘cleansing’ effect of the competitive market, is presumed to be awash in inefficiency.’

This means the public sector cannot really deliver the quality service the people or the community so urgently needs. By contrast, the private sector tends to minimise cost and provide quality service because of intense competition.

Privatisation accompanies liberalisation. It is also defined as “the process of transferring the production of goods or provision of services from the public sector of an economy to private ownership and operation” (Lewis, 1999).

Privatisation also includes:

• The sale of state-owned operations to a privately owned company;
• The offer of shares in a state-owned operation on a capital market;
• The distribution through some voucher scheme of shares in a state-owned operation.

The government often controls the energy sector within the country; this is true with Turkey. Successful privatisation goes through various barriers and hurdles. But privatisation is a crucial element in the liberalisation process.

Turkey is one of those countries which have undergone the slow process of liberalisation, and has adopted some of the market-based competition in its industries. Liberalisation is also well underway in the East European countries, the United Kingdom, South America and the United States.

There are benefits and defects in the privatisation of the energy sector, according to a World Energy Council paper presented by Gerhard Ott, Chairman of the Committee on Benefits & Deficiencies of Energy Sector Liberalization, and co-author Graham Ward, world utilities leader, Global Energy & Mining Group, PriceWatherhouseCoopers (UK).

They mentioned positive developments such as “raising efficiency, reducing costs, promoting new investments and cutting prices”. These were evidenced by the countries that went through the process of liberalization and privatisation. (Lewis, 1999)

However, the condition and methods of energy liberalisation differ from country to country and region to region. Liberalisation is really a difficult process and there are many hurdles along the way. Some of the issues that have to be dealt with include “liberalization affects research and development costs, the prospects for nuclear power and renewable energy development, and environmental standards” (Lewis, 1999).

There are some disadvantages to privatisation. The adoption of privatisation is sometimes simplistic and ignores the discipline imposed by elections and the media on the operations of management. This is not to say that the government can provide the necessary quality service for as long as it passes on the key positions of a particular organisation to qualified and professional personnel.

The salaries and allowances of the managers and employees should also be at par with the private sector, so privatisation will not be an option. But as a whole, most governments act on privatisation to raise funds, while some other reasons are just secondary.

Privatisation in Turkey had a rough sailing. It was marred by delays, legal challenges and other bumps in the road. There were requirements which seemed endless for big and large firms, for example the privatisation of Turkish Airlines, Tekel, Petkim and Tüpras, of which the Zorlu Group submitted its highest bid.

There was an all out flotation of shares in Istanbul in 2005. Petkim’s sale was hounded by controversy. A block sale consisting of 90% of the company was to be offered to Standart Kimya but it was abandoned. (Country Focus, 2004)

The sale of Petkim and Tüpras are examples of mergers that affected the chemical sector. Government wanted to raise funds of up to $4bn in the sale of government assets but it only acquired $744m. The process continued despite the bumps.

Presently, there is a continued macroeconomic and political stability and strengthened ties with Europe which has benefited much of the Turkish companies of all sizes. This has further bolstered “consumer demand and sparked new investment as borrowing rates head downward and Turkish banks begin building stronger relationships with small and mid-size businesses.” (Country Focus, 2005)

Business groups in Turkey have resorted to diversified types of operations to reduce risks. Various reasons for risks and uncertainties include the government’s moves to institutionalize some industrial policies giving it reason to provide incentives to some businesses, coupled with imperfect markets in terms of production, capital and labor.

There has been state intervention in some businesses, while businessmen have to resort to knowing politicians and bureaucrats or policy agendas to acquire business opportunities and minimise losses (Buğra 1994; Buğra and Űsdiken 1995; Özen 2003 cited in Colpan, 2010, p. 496).

Market Structure in Turkey

After liberalisation, Turkey opened to international competition. It started in 1980 and eventually marked a critical change in this country’s economy. The liberalised groups that started in this period continued to expand. Like any other economy opening up to the international world of business, the Turkish groups continued to take hold of the opportunities for economic growth.

The deregulation and privatisation initiated by the government proved effective. State-owned enterprises were starting to be effective in delivering their services or in selling their products. The banking and finance sector were also liberalised, and were moving onwards.

Policy agendas in industries were geared towards advancement and so corporations, big and small, saw the opportunity and took the bait by committing themselves, their resources and finances. When government committed to provide incentives, groups entered the tourism and overseas trade. The many new policies on liberalisation of domestic markets created many opportunities for profit-making.

Many took advantage of the shift in domestic policies by acting as agents to international organisations who wanted to enter the local market, or by having a joint venture undertaking with multinational corporations (MNCs). (Colpan, 2010, p. 504)

There were latecomer business groups that wanted to get closer to the forerunning groups which had made their successful entry in the liberalised market of Turkey. They made their investments and contributed further to the growth of the economy.

Established groups made their entry too, and this created a “bandwagon effect” (Knickerbocker 1973 cited in Colpan, 2010, p. 504). Commercial banks came in to the rescue of the latecomers that took opportunity of the liberalised Turkish economy in the 1980s and the early 1990s. They provided loose credit allocation to the group’s financial burden.

Now there were two subcategories of business groups that took advantage of the Turkish liberalised economy – the forerunners and the latecomer groups. These two groups invested heavily in diverse products and businesses. They helped the growth of the sectors in financial services, energy, and IT. These two groups maintained their growth and stability until the mid-1990s and mid-2000s.

There were few groups which faced the financial and economic crises of 1994 and 2001. But some groups led by Zorlu, to include Sanko, Sahinler and Ciner, maintained their growth and product portfolios in spite of being latecomers (Colpan and Hikino, 2008 cited in Colpan, 2010, p. 504).

The forerunner groups, taking advantage of the government-initiated opportunities, invested heavily in the manufacturing industry, further creating a barrier entry to the latecomers. As a result, the manufacturing sector became a little overcrowded, the emerging business groups invested in other areas, such as services and finance, and in the non-manufacturing sectors.

The established groups became investors in the service and finance industries. As a result, there was a fierce competition between the two subcategories – the established groups and the latecomer groups. (Colpan, 2010, p. 504)

The “New Ottomans”

The Republic of Turkey started its existence as a proud but poor country. In 1919, a Turkish general by the name of Mustafa Kemal successfully defended the Turkish Straits in Gallipoli. Kemal led the troops until he reached Samsun, the Turkish Black Sea port, successfully conquering the enemy. (Mango, 2005, p. 17)

Mustafa Kemal is the founding father and first president of the Republic of Turkey. He instituted a rational government although it was not a fully functional democracy. Kemal set his goals to set up a coherent and economically functional society, but poverty and illiteracy prevailed.

Mustafa Kemal made the needed reforms. These reforms were the introduction of a secular government untrammeled by religious dogma, the emancipation of women, the introduction of the Latin alphabet, the adoption of the ‘common era’ with its calendar and universally accepted days of rest, and the use of everyday Turkish language instead of the Mandarin Ottoman language.

He banned the fez and discouraged the veil on women. He imposed the introduction of surnames and chose for himself the surname of Atatürk. (Mango, 2005, p. 18)

The Islamist Republic of Turkey revitalized the economy. It has now built a strong foundation by having good terms with the west and the European Union and carving out a high profile in the global marketplace. (Head, 2010, p. 45)

Liberalisation and deregulation have contributed to the economic growth of Turkey. The government, composed of an overtly Islamic party that is holding a majority of the seats of parliament, is pushing forth the much needed reforms. Jonathan Head (2010) says these are the ‘New Ottomans’.

After the fall of the Soviet Union, Turkey experienced several setbacks caused by the faults of several coalition governments. It also suffered negative economic growth. But recently, Turkey was able to catch up. It experienced positive growth in the exports of vehicles and other important products. (Head 2010 p. 45)

Head (2010) called Turkey’s new economic growth as ‘new Ottomanism’, referring to the days of the Ottomans in historical Turkey when the sultans were the powerful rulers. Turkey has no more problems with its neighbors, one reason why economic prosperity is unhampered and going onwards.

The government has been successful in gaining the friendship of its neighbors like Syria. Iraq also has good relationship with Turkey; Iran is a friend as well. Turkey and Iran are now talking in terms of business such as the possibilities of a joint airline, a joint banking venture, and a Turkish-Iranian industrial park.

Turkey’s party is known as Islamist, but the government is more economically driven. It has a record of commercial triumph over adversity. Turkey is seen as the new economic leader in the region.

This year, vehicles manufactured in Turkey will flood the streets of Britain. This seemed impossible years ago when an earthquake struck Turkey and killed about 17,000 people in that place where the factory now sat to produce vehicles for Britain. (Head, 2010, p. 46)

Turkeys Accession to the European Union

Turkey’s accession to the European Union can have some effects on the country’s economy. There are many challenges in Turkey’s accession, including external and internal ones. Nevertheless, Turkey has separated its internal security challenges from the external ones, for example Kurdish separatism from Islamic fundamentalism.

The Muslim issue is more of historical than religious. Turkey’s case is unique because of the various controversial issues that have to be resolved. A special kind of membership is not commendable however, since this will be opposed by most member countries.

Turkey’s accession to the European Union is considered the most controversial because it has been opposed by member states and has provoked substantial debate. Turkey is a country with a strong aspiration to be part of Western institutions, particularly the European.

Turkey wanted to consolidate its secular republic and maintain territorial integrity. Difficult negotiations are seen ahead because of Turkey’s large Muslim population, and with a political system that is far from European standards. (MacLennan, 2009, p. 20)

There are also a number of common beliefs that are considered opposite to what Turkey and Europe are seen by the member countries. Some beliefs, or remarks, that tend to malign the issues facing the EU and Turkey are: the EU is a “Christian club” while Turkey is a Muslim country”; the EU as a “political and economic union”, a “democratic union”, and Turkey is a ‘secular country’, and is implicitly culturally Asian and not European.

Giscard d’Estaing’s discourse then suggested that it is impossible to join together the EU which is a union of European countries and Turkey which is geographically “not” in Europe, nor is European culturally. (Negrine et al., 2008, p. 49)

Another remark is that Turkey’s membership to the EU will damage the “Europeanness” and that the concept of Europe will no longer exist. The controversy, debate and opposition of Turkey’s accession to the EU are due to various causes that may range from utilitarian considerations to cultural concerns on the part of the Europeans.

Turkey is seen as a poor and very populated country that it might destabilize the EU as an economic entity. Moreover, it has been featured as the ‘other’ in Europe (Negrine et al., 2008, p. 51). Turkey is also perceived as “too undemocratic, too illiberal and too culturally different” (Aksoy, 2008, p. 470). Other issues include democratization and human rights (Rumford, 2003, p. 379).

The negotiations process is a significant event for the European Union as a regional grouping. It is one proof that the European Union is a success as an organisation and its political system can be a model for all the others even with such diverse cultures as Europe. But troubles and problems over candidate countries are diverse and unique as the cultures, Turkey for example.

Many Europeans think that the entry of Turkey will be like a new siege against Vienna or that Europe will succumb to a foreign invasion. However, for Turkey it is a great step forward in its quest for modernization and Westernisation. Europe on the other hand may demand a price.

Some Turks think that this price could mean the reconquest of Constantinople which the Ottomans conquered in the fifteenth century. (MacLennan, 2009, p. 21)

Turkey has been a full and equal member of several US- and Europe-led international and regional institutions, but this one the EU membership, has challenged Turkey with much difficulty.

It became a member of the European Economic Community in 1963, and also into a customs union with the Community in 1995, but this did not give any meaning to the Turkish quest to become an EU member. In 1999, after years of strained relations, it was given official candidate status with a prospect of being given a status lesser than full membership. (Aksoy, 2009, p. 470)

Problems on Turkey’s accession into the EU are categorized as internal and external. Turkey has to reframe its foreign policy, reconciling the different dynamics to resolve internal and external issues. Since Turkey is geographically at the edge of Europe, doubts persist about whether Turkey belongs in Europe.

A complex and difficult historical background defines the Turkish-European relationship; whilst Europe has tried to define itself as different from others culturally and politically, and the European context and meaning to the eyes of the world have changed over the last 500 years or more (Delanty, 1995 cited in Negrine et al., 2008, p. 50).

Economic Implications of Turkey’s Accession

Turkey’s membership to the EU is said to be a fortune for Turkey. The EU is a fulfilment of some countries’ dream of progress and development in the midst of globalisation and new technology. Generally speaking, good governance and modernity surround the EU, or are parts of the EU. Turkey has strong grounds for membership.

Its goals are coherent with the political nature of its state as a secular republic that is part of the Western world. Its quest for membership is in accordance with the dream of the Turkish founder, Mustafa Kemal Atatürk, a devoted Europeanist who used all his power since 1923 for Turkey to be anchored in Europe, and that the West would recognize Turkey as part of it, in the context of the political, economic and cultural points of views.

Turkish long aim for membership could be a culmination to the long march towards Europe, more than the economic and political benefits.

Oxford historian Timothy Garton Ash (2005, cited in MacLennan 22) said that the continent of Europe was divided between the West that has Europe that no longer really believes in it and the East that believes in Europe because it bears the aspirations of its people.

Turkey believes in Europe that symbolizes all its aspirations, same as the countries of Greece, Spain and Portugal in the 1960s and 70s and the Communist countries in the 1980s.

Other significant benefits Turkey may gain in joining the EU:

1. Joining the EU is one of Turkey’s goals and parameters of Turkish foreign policy. Turkish accession will ensure the secular structure of the Turkish domestic system. (Uslu, 2004, p. 44)
2. Globalization calls for interdependence among states, and Turkey has to join one of these groupings as a necessity enforced by the new world order.

Turkey will not be isolated from the international arena, and will be secure from the troubles and conflicts in its neighbourhood. (Hale, 2003, p. 109)

1. Turkey’s EU membership will prevent a collapse of the Turco-Greek balance in the Aegean, and Turkish failure will work to the advantage of Greece. (Uslu 44)
2. Turkey needs the help of the EU in terms of aid and financial assistance for economic development.
3. Turkey needs EU help to reform its domestic system particularly its democratic institutions. (Uslu, 2004, p. 46)

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