Challenges Facing Small and Medium Enterprises in Turkey Research Paper

Proposed research topic

The challenges that small scale business in Turkey face when competing with multinationals and large-scale business. The research will finally devise a way that the government can assist in development of small-scale businesses (SMEs).

Introduction

Republic of Turkey is the sixth largest Turkic country, located in Southeastern Europe. The country ranks number 15 as largest country in the world in terms of GDP. It is ranks 17th largest Nominal GDP, in the world. According to census 2009, the country had a population of 77million, with a quarter of them living in the rural areas.

The population is dense with an average of 93 people per kilometre squared. Two thirds of the population are in the age bracket of 19 to 55 years. This youthful population is increasingly establishing small-scale business as their source of income.

SMEs are also a form of innovations. Though the country is, highly industrialised, small-scale business survival rate is under threaten from international multinationals and large scale businesses. The small businesses are facing a challenge in competing with multinationals, monopolies and large-scale businesses.

Trade is the backbone of the economy and thus its efficiency results to better functioning of the economy. According to EU definition, an SME is any business that has between 10 and 250 employees. If the employees are between 10 and 50, then the business are small scale and between 50 and 250 as micro scales^[1].

Aim of the research

The purpose of the research is to understand the problems SMEs face in the changing competitive business environment. It will also make recommendations that can assist future business people in performing their duties effectively.

Objectives

The following are the objectives that the researcher will satisfy through the research:

• To evaluate and understand the problems facing SMEs in Turkey.
• To find out the role the government can play to make business playing ground level.
• To evaluate what are the main reasons that make SMEs fail within their first five years.
• To devise a mechanism that can be used by existing and prospectus SMEs holders to remain competitive in the developed Turkish environment.

Theoretical background

SMEs are the backbone of developed economies; however, they are facing a challenge to start up and remaining competitive in Turkey. The greatest threat of growth and sustainability is from multinational and large-scale businesses, which have dominated a large position of the country’s economy.

Over three quarters of Turkish population live in the urban and cities where business flourish. SMES, in cities, urban areas and rural areas are facing similar problems mostly associated with the competition they get from the large established companies. The government have tried to protect the local companies but the success of set programs is not high. Despite the economy being among the well developed in the world, SMEs are required especially in this era of recovery from global recession.

Literature review

This section will focus on studies and data collected in Turkey as well as other countries on problems that SMEs face. It will also evaluate some of the way the government of Turkey has implemented to level the world of business environment in the country.

The rate of start up businesses failure

The rate of start up survival varies across industries and economies. There are some economies with a high rate of sustainability because of strategies set by their governments, and there are countries, which rarely retain the SMEs. Certain industries are move vulnerable to fail than others. The service industry suffers more as it faces the highest rate of fail compared to good sector. Mining has the lowest rate of failure (see the appendixes for the latest statistics on failure)

Problems facing SMEs

Unfair competition

Multinationals operates in different countries, thus they are able to fetch for raw materials at a competitive price that local SMEs companies. When raw materials are sort at a low price, then the cost of production of a certain product or service is relatively low.

At low prices of production, then the companies are able to sell their goods at relatively lower prices than the prices quoted by local companies. Other than physical raw materials, the companies are able to get cheap labour, by decentralizing their labour intensive processes to developing countries where labour is relatively cheap. This lowers the cost of products even more.

The large-scale companies and multinationals enjoy economies of scale. They are able to produce and sell at high volumes, a system that reduces common costs associated with a certain product. This makes the companies able to sell large volume at a low price^[2].

Capital

For an efficient and competitive business, capital, both financial and human are required. Although Turkey has among the world best banking system, the system follows the traditional banking system where loans are preferred to businesses that have solid assets like land and properties. At development stage, SMEs do not have those required assets and thus they have limited access to loans. Limited access to loan is a limited growth rate.

When the loans are available, they are from local companies, which are relatively at a higher rate than the rate offered by international banks to multinationals. Lack of capital and high rate of borrowed loan result to slow growth rate in SMEs; some companies depend on self-financing or borrowing from friends or relatives. This many not be adequate and thus limits the rate of growth the company can have.

Minimum capital limits the level of technology that an SME can use in production. The available capital has a limited level of technology that it can adopt which may be inappropriate. On the other hand as technology changes, the old machines need to be upgraded or faced out all together, however, SMEs are not able to do this as these assets are held by loans they are financing^[3].

Technology innovation and globalization

Since the mid-1990s, economist, politicians and policy makers have been concerned about the effect that technology have on SMEs. They are of the opinion that the rate of technological development in the world is offering a challenge to the SMEs. They are left stuck with the old technological system, while their competitors, who are large scale and multinationals, have moved to higher better technologies.

The rate that the world technology is growing is high. The pace is so high for local SMEs to cope with. Other than the world general rate, multinationals and large-scale companies are the drivers of technology. They ensure that there is an improvement in technology to benefit what they do.

This is where SMEs are caught. They do not have the expertise and the funds to finance a certain research. When a large company has adopted an in-house technology, it goes a long way in improving efficiency in the company. This goes a long way in reducing the cost of production. SMEs are left to struggle upgrade their technology all in vain^[4].

The Turkish culture

The people of Turkey are more willing to buy from well-established companies who produce goods with high level of efficiency, other than buying for local companies trying to upgrade their standards. This country notion is at the expense of SMEs and they suffer a reduced market. When multinationals are adverting, they are able to place different advertising tools in the countries streets, media and social networks.

This is at a high cost. SMEs cannot be able to pay such costs and retain the business running successfully. Lack of such strong marketing tools works to the bad of the company as there is minimum awareness of the existence of SMEs products in the country. Some products that are innovated by SMEs, but they lack proper access to the market. The results are companies with a reduced sale.

Lack of managerial expertise

SMEs suffer from lack of professional expertise. It happens because families, which leave them to their children who may not have the required level of managerial experts and professionalism, manage some of them. The success of a business is dependent on the quality of decision that its management can make.

If they make quality, timely and speedy responsive decisions, then they are likely to succeed. The case is different in Turkey. SMEs managers lack the exposure and professionalism that large scale and multinationals have. Multinationals are able to get employees from all over the world. This diversity of employees creates a pool of knowledge and expertise necessary for current business world.

Generally, managers, who are mostly the owners, develop their own system of management, which is trial and error to resolve different issues in their business. This kind of decision-making is more intuitive than analytical, resulting to a narrow short-term focus than aiming at developing long-term strategic decisions. Although the same intuitive mind led to the establishment, the same mind may limit the growth. When change arises making complex decisions becomes a problem, then the SMEs suffer.

For a successful business, education training and information are necessary. Managers and leaders of SME s lack the three important elements and thus suffer. Studies shows that those people operated by educated people in their area of speciality as well as business management have high chances of survival than those run by less educate people^[5].

Scanty Markets Information

Information is power; however, SMEs lack this important component of production. When a company has access of updated timely information, it is able to make decisions that are responsive to its needs. For example, customer preferences keep changing, for success a business need to keep with the pace of change so as it can always produce goods that met customers need and expectations.

The lack of information make the companies suffer this advantage of offering quality goods. Since Turkish multinational and large-scale businesses have access of this information through their internal research and development programs, they are able to remain competitive and even overdo the local SMEs.

There is also a level of ignorance on the part of SMEs holders, they mostly depend on information they get directly from the market and forgets there are national and international databases that can offer much needed information. They thus make decisions with scanty information. Decisions made from scanty information

What the government have done to protect SMEs

Turkish government have recognised the need to protect local and international SMEs. Although the country is a capitalised country, the government have controls the economy using monetary and fiscal policies. Some of the ways it has implemented are:

Setting price ceilings and floors

The government have set floors and ceiling for some commodities in their efforts to protect the consumer and the SMEs. This is in industries like oil and petroleum and electric energy. These moves aim at creating a level playing ground. The success of such strategies is that they address specific industries and leave majority of industries exposed to unfair trade from large scale and multinationals. Another move that closely links with setting prices is having tariffs and non-tariffs trade barriers.

Raw materials, semi finished products and finished products imported in Turkey are taxed differently to protect local manufactures. For example, beef from United States of America is highly taxed as it enjoys subsidies form the home country making it very competitive to beef in Turkey. Tariff and non-tariffs are moves to ensure that price is controlled.

Adoption of Micro and SME banking

Turkish central banks have recognized the effect that Grameen banking system can have in the economy. The banking system founder, Muhammad Yunus, focused on micro and small scale businesses. Although the system targeted developing countries, it has increasingly taking course in developed country with turkey being one of them.

The government in embracing this move aims at creating a better playing ground among different players. SMEs can now get some loans at relatively better prices. The challenge is on the amount of loan that these institutions can offer. There are also concerns about their sustainability.

Developing a public database

One of the areas that Turkish government has looked into is on creation of a database that SMEs can use to make decisions. The databases also have links to international information that can assist businesses in making more decisions that are informed. There are different databases divided in different industries and updated at most weekly. The only problem with these sites is that they only contain general information that managers in SMEs may consider not very important.

They tend to focus on the economy at macro level while SMEs would be better off with micro statistics on their areas of operation. There is also ignorance from SMEs owners and managers. They have not embraced scientific decision-making mechanisms and thus they do not use these sites^[6].

Research Methodology

There different methods of collecting data to fulfil the objectives of the research, however, the researcher will use primary research methods and secondary research methods. Measures will be undertaken to ensure that all data used is relevant. The approach will be on a larger perspective but will be shortened by analysis to be applicable in the case of Turkey.

Primary sources of data

Primary method of collecting data aims at collecting first hand information about an issue. In this case, the researcher wants to evaluate the issues faced by SMEs in Turkey. He will use the following methods of data collection:

Interviews

Interviews will be conducted on both SMEs traders and customers in general. SMEs operators will be approached and interviews conducted to explain the challenges that they have faced when operating businesses in Turkey. Before being given the questionnaire, the researcher will have discussed with them the trend in business to ensure that they relax and give true information.

Since the number of SMEs is high, the interviews will be conducted face to face in five provinces, which are İzmir, Bursa, Istanbul, Ankara, and Adana. The questions will also ask the operators to give their opinion on what they think government could do to assist them (please see the appendixes 2 for a sample questionnaire to SMEs operators)

Interviews to consumers of different products will be conducted to get in-depth information on the reason why they buy from multinationals and large companies instead of SMEs product. This data will assist in recognizing the bridge between what the multinationals and large scale are producing and what SMEs are producing (see appendixes 2 for sample questionnaire).

Focus groups

Focus groups are the second method of data collection that will be used. Under this method, groups will be made to discuss the trend in SMEs companies. The groups will consist of approximately ten business people in SMEs as well as consumers. The researcher will be the focus group leader and thus he will focus the direction of the group.

Secondary sources

A number of materials exist in the library, the researcher will use them to get data; focus will be on those materials written by professionals in trade and businesses. All material to be used will be vetted for relevance and the qualification of the writer. The focus will remain in Turkey but to get a deeper understanding, review of journal s and academic articles written for other developed countries will be done.

Other than books, the researcher will use government resources that will give policies and trends in the country. It will also use executives reports regarding the type of good customers prefer. For example, a certain industry say cosmetics will be targeted and business statistics on which products chosen will be developed^[7].

Electronic sources

This will mainly be the world’s trade statistics as well as Turkey government website. The sites will be preferred as reference point since they offer more updated information than books, which may have been written some years back. Certain sources those are not academic like Wikipedia, yahoo answer and Answer.com will not be used. Any electronic source used must pass the test of integrity. United Nations and World Bank websites will be of use to get data from an international body and angle.

Rationale for choosing these methods

When using secondary data, the researcher will develop a rich historical background on the matters at hand. The method will offer good literature, which will broaden the topic of research for better analysis. Secondary sources of information on the other hand will give information not limited to Turkey but will offer information in other developed countries. This is important for better analysis.

When using interviews, some information that might have not been captured in books and journals available in the library will be captured. This is a source of rich data for a more updated and responsive analysis. It should also be noted that books, periodicals and journals may have some theories they advocate that are not responsive, however when primary source of data is used, applicable solutions are developed.

Focus groups will be facilitated to discuss various issues facing SMEs; they will offer rich information that can be used for quality analysis. Different industries will be combined in focus groups and common problems and solutions devised. Internet sources will be used to get updated information about the current trend in the market^[8][9](Appendixes 4 gives a timeline of how activities will follow).

Results, Findings and Discussion

From the literature review, it is clear that SMEs are facing numerous challenges competing with established multinationals and large corporations. Although the government seem to be willing to assist SMEs, there are a lot to be done by the government and entrepreneurs. Government cannot protect SMEs forever but need to develop a level-playing group for both large scale and small-scale businesses.

Before an entrepreneur establishes a business, he should take the initiative of attending business basic managerial course and realise the benefits that can accrue from scientific methods of decision-making. Government libraries, statistics should be of great use to traders as they get updated information on current business trends. This will assist them in making quality decision competitive decisions.

Other than the government using the old system of protection, it should appreciate that Turkish economy has changed and it need changed policies and strategies. The best solutions should come from the traders themselves since they have information at hand^[10].

Bibliography

Oxley, Martin, and Brendan Light. “Research 2.0.” International Journal of Market Research 51, no. 2 (2009): 153-161. Business Source Complete, EBSCOhost .

Steier, Lloyd P., James J. Chrisman, and Jess H. Chua. “Entrepreneurial Management and Governance in Family Firms: An Introduction.” Entrepreneurship: Theory & Practice 28, no. 4 (2004): 295-303. Research Starters – Business, EBSCOhost .

Steven Bianchi, Robert, and Sumru Aricanli. “Turkey.” Faces (07491387) 26, no. 5 (2010): 8. MasterFILE Premier, EBSCOhost .

Yetim, Nalan, and Unsal Yetim. 2006. “The Cultural Orientations of Entrepreneurs and Employees’ Job Satisfaction: The Turkish Small and Medium Sized Enterprises (SMEs) Case.” Social Indicators Research 77, no. 2: 257. MasterFILE Premier, EBSCOhost .

Yolal, Medet, Murat Emeksiz, and Fatmagul Cetinel. “Marketing of SMHEs in Turkey: A Comparative Analysis.” Journal of Hospitality Marketing & Management 18, no. 4 (2009): 372. MasterFILE Premier, EBSCOhost .

Footnotes

1. Steven Bianchi, Robert, and Sumru Aricanli. “Turkey.” Faces (07491387) 26, no. 5 (2010): 8. MasterFILE Premier, EBSCOhost .
2. Yolal, Medet, Murat Emeksiz, and Fatmagul Cetinel. “Marketing of SMHEs in Turkey: A Comparative Analysis.” Journal of Hospitality Marketing & Management 18, no. 4 (2009): 372. MasterFILE Premier, EBSCOhost .
3. Steier, Lloyd P., James J. Chrisman, and Jess H. Chua. “Entrepreneurial Management and Governance in Family Firms: An Introduction.” Entrepreneurship: Theory & Practice 28, no. 4 (2004): 295-303. Research Starters – Business, EBSCOhost .
4. Steier, Lloyd P., James J. Chrisman, and Jess H. Chua. “Entrepreneurial Management and Governance in Family Firms: An Introduction.” Entrepreneurship: Theory & Practice 28, no. 4 (2004): 295-303. Research Starters – Business, EBSCOhost .
5. Yolal, Medet, Murat Emeksiz, and Fatmagul Cetinel. “Marketing of SMHEs in Turkey: A Comparative Analysis.” Journal of Hospitality Marketing & Management 18, no. 4 (2009): 372. MasterFILE Premier, EBSCOhost .
6. Yolal, Medet, Murat Emeksiz, and Fatmagul Cetinel. “Marketing of SMHEs in Turkey: A Comparative Analysis.” Journal of Hospitality Marketing & Management 18, no. 4 (2009): 372. MasterFILE Premier, EBSCOhost .
7. Oxley, Martin, and Brendan Light. “Research 2.0.” International Journal of Market Research 51, no. 2 (2009): 153-161. Business Source Complete, EBSCOhost .
8. Oxley, Martin, and Brendan Light. “Research 2.0.” International Journal of Market Research 51, no. 2 (2009): 153-161. Business Source Complete, EBSCOhost .
9. Yetim, Nalan, and Unsal Yetim. 2006. “The Cultural Orientations of Entrepreneurs and Employees’ Job Satisfaction: The Turkish Small and Medium Sized Enterprises (SMEs) Case.” Social Indicators Research 77, no. 2: 257. MasterFILE Premier, EBSCOhost .
10. Steven Bianchi, Robert, and Sumru Aricanli. “Turkey.” Faces (07491387) 26, no. 5 (2010): 8. MasterFILE Premier, EBSCOhost .