Introduction
Turkey can be considered as an attraction for foreign investment mainly due to the fact that is internal market is larger than any of the countries of the European Union, excluding Germany, and the 15th largest economy in the world (Investment Support and Promotion Agency, 2009). The basis of the current investment policy was founded in the 1980s as a component of a large-scale reform directed toward the liberalization of the economy. Considering the favourable economic environment for investments in Turkey, Oh la la!, a French manufacturing company, is interested in investing there through establishing a legal presence. In that regard, this paper analyzes such possibility, through providing a general strategy for the selection of the most appropriate business form for such presence.
The Legislation
The main factor in choosing Turkey for investment can be seen through the view of Turkish government on foreign investment as a vital part of the country’s prosperity (Dimireva, 2009). In that matter, Turkish legislation can be seen as the result of such view. The legal framework governing the foreign investments in Turkey is Foreign Direct Investment (FDI) law, which goals are encouraging FID’s, protecting foreign investors’ rights, apply international standards and increase the volume of FDI (Investment Support and Promotion Agency, 2009). Another contributing policy can be seen through the Turkey’s 1990 Bilateral Investment Treaty (BIT), which guarantees the “free transfer of profits, fees, and royalties, and repatriation of capital” (Dimireva, 2009). The results of such legislations, can be seen through the facilitation of FDIs in Turkey, where the percentage of FDIs from EU-15, constituting 67.3%, with France taking the fourth position with 7.79% (“Business and Investment: EU Brochure,” 2009).
The Forms of Business
Foreign investors have several forms of businesses to choose in Turkey, ranging from starting a new company, making a portfolio investment, participating in a joint venture, to purchasing a part of an existing business, or establishing a branch or a subsidiary. In that regard, the most common types of legal presence in Turkey are as follows:
- Limited liability Company (Ltd. Sti.)
- Joint-stock company (A.S.)
- Branch office
- Liaison office (Ansay & Schneider, 2001)
The selected form of business is regulated through Turkish Commercial Code of 1956, and accordingly the selection of the type of legal presence is dependable on the characteristics of the business as well as the characteristics of a particular form of business, which makes it preferable for the investor (Ansay & Schneider, 2001).
Recommendations
Generally, it should be stated that branch office and liaison offices, as forms of legal presence, are less appropriate for the manufacturing business of Oh la la! Company. On the one hand, the branch office is mostly appropriate for marketing and services, such as consulting, and on the other hand, a liaison office “can be used only for the purpose of coordinating a business but cannot conduct commercial income generating transactions within Turkey” (Ansay & Schneider, 2001, p. 196).
In that regard, it can be stated that the options for the options for Oh la la! remain either through joint stock company (A.S.) or Limited liability Company (Ltd. Sti.). The joint stock form is mainly used when conducting a major project or creating large companies in the industrial sphere, in which large investments are required. It can be assumed that it will be easier for larger projects to attract shareholders. On the other hand, limited liability companies have their own advantages, which can be seen through the simplicity of the registration, where the minimal requirements are less than of joint stock companies (“Business Guide to Turkey,” 2009). In both cases there is no minimum contribution requirement for the foreign partner, which is a significant change in the policy that previously required foreign investors to pay $50000 in capital for each (Ansay & Schneider, 2001).
In the case of the present company, it can be stated that the limited liability stock can be seen as most appropriate strategy of entrance, where the nature of the business, i.e. manufacturing company, is restricted in such form of business, and additionally, its simplicity and flexibility makes it easy for the owners to raise the capital without a change in the participation of the shareholders. Additionally, assuming that the company does not need to raise capital and attract shareholders, the minimal number of the shareholders required, i.e. two would be more suitable for the company. In that regard, limiting the number of shareholders will make it easier to control, where management decisions of the company will be handled through a majority vote, and there is no board of directors required. The responsibilities of running the company can be handled through appointing a director, or a manager (“Business Guide to Turkey,” 2009).
Additionally, there are number of incentives available for investors and business owners, which are dependable on the nature of business as well as the geographical location of the company. Generally, the investments encouraged are in the manufacturing sector, the energy sector and exports. In that regard, in terms of geographical location, zone 4 has the most incentives, in terms of social security premium contribution for employers, interest support, and tax reduction. Zone 4 is mainly covering eastern Turkey, while this sector is supported only for the following activities:
- Agriculture
- Agriculture-based manufacturing industry
- Ready-to-wear
- Plastics
- Rubber
- Metal goods
- Tourism
- Health and education (Investment Support and Promotion Agency, 2009)
Another factor that should be considered is the timing of entry. The recent financial crisis has made an impact on the Turkish economy, and slowed the fast paced rate of growth (Report, 2008). Thus, the possibility of a downturn in the Turkish economy is a factor that might influence the decision for the investment to be postponed. On the other hand, incentives offered to FDIs are differentiated based on the time of the investment, i.e. prior to 2010 and after 2010, where after 2010 the incentives and tax cuts are to be reduced (Investment Support and Promotion Agency, 2009). In that regard, it can be assumed that the company might decide to invest at the present time, with hopes that global recession will pass without affecting the business.
Conclusion
It can be concluded that the decision to invest in Turkey has many advantages related to the favourable economic conditions in Turkey. Additionally, the Turkish business legislations facilitate the flow of FDIs into the country, making no distinction between a foreign or a local investor. Analyzing the forms of businesses common for the investment in Turkey, it can be stated that Limited Liability Company can be seen as the most appropriate at this stage of entry. Timing, types of business, and its geographical location are important factors, in terms of the incentives provided by the government to support foreign direct investments.
References
Ansay, T. g., & Schneider, E. C. (2001). Introduction to Turkish business law: Kluwer Law International.
Business and Investment: EU Brochure. (2009). Web.
Business Guide to Turkey. (2009). As Istanbul Stones Ltd. Web.
Dimireva, I. (2009). Turkey Investment Climate 2009.EUbusiness. Web.
Investment Support and Promotion Agency. (2009). INVESTORS’ GUIDE. Web.
Report, F. T. S. (2008). Investing in Turkey. Financial Times. Web.