Turkey : An Emerging Market

1
Turkey An Emerging Market
Industry Briefing
4th May , 2004
Burc Buyukonal, Business Development
Manager, Istanbul, Turkey
? Austrade, Istanbul, April 2004
2
Agenda

• Country Overview
• Population GDP
• A Market In Transition
• Why Turkey Makes Business Sense
• A growing consumer base
• Households are increasing
• Industry is performing strongly
• Key Growth Sectors
• Education Training
• Automotive
• Wine
• ICT
• Telecoms
• Healthcare medical

3
Country Overview
4
Country Overview cont.

• Understanding the market, growth opportunities
  implications
• Turkey borders 8 countries both the EU, Middle
  East Central Asian Republics
• Second largest member of NATO
• In the Middle East and Central European region,
  Turkey is one of the largest countries in terms
  of population and economy
• Customs Union with the EU since 1996
• Anticipated to have largest population in Europe
  by 2014
• October 2004 EU leaders will decide whether to
  proceed on accession negotiations
• EU membership 2010 15?

5
Country Overview cont.

• Turkey is one of the largest economies both in
  terms of population and potential for growth in
  the Middle East / Central European region
• 12 million people hold 55 of GDP
• 50 under age of 25!
• Labour force 24.4 million
• Population growth 1.5 pa
• Unemployment 11.4
• Urban population 69
• Literacy rate over 86.5
• Turkey is also one of the few secular and
  democratic Muslim nations
• Turkey will play an important role in the
  rebuilding
• of Iraq

A growing market of opportunity
Source CIA website, various sources
6
Population GDP
TURKEY
Land area
769,604 sq km
Population
69,603,927
Inhabitant per sq km
88.2
88.2
8.4 M
17.4 M
6.1 M
11.6 M
8.9 M
6.6 M
8.7 M
Source 2000 Census, State Institute of
Statistics (SIS), TUSIAD, April, 2004 World
Bank data, 2004
7
Population GDP cont.

•   

Turkey represents a large market when compared to
peers
Source World Bank website, April, 2004
8
Population GDP cont.
GDP by regions sector
1990-1997
1998-2001
2002-2005
The market outlook is positive as the Government
undertakes planned reforms in liberalising and
restructuring the economy.
Source Sector Shares in GDP, period average, ,
In current prices TÜSIADs forecast, SIS,
TÜSIAD, March, 2004
9
A Market In Transition
NATO

World Bank
IMF

• EU / IMF Structural Reforms
• Human Rights
• Privatization
• Legislative
• Transparency
• Bureaucracy cut

• Economic Improvements
• Banking Reforms
• Inflation Targeting
• Strict Fiscal Policy
• FDI Attracted

Developing Market Environment
EU

• Political Development
• Majority Party Leadership
• Strong market support
• Role of State and Military
• Electorate Maturity

• Key Milestones for 2004
• Iraq Conflict over with minimal impact
• Cyprus Issue must find a solution
• IMF - on track
• EU accession continuing structural reforms
• Government is fully committed

2010
2003
2004
2001
2002
20
2001
2002
2005
2004
Citibank, Turkey April 03
Source Adopted from Citibank, Turkey, 2003,
Austrade analysis
10
Why Turkey Makes Business Sense
Turkey

• Solid Government majority
• by AKP
• Municipal elections further
• strengthens grip in March 2004
• Focused on reforming major
• institutions economy

Stable Government
Stronger Economy
Location

• Strategically situated between the EU and Middle
  East and Central Asia...

• Lowest inflation in 38 years!
• CPI anticipated to hit single
• digits year end
• Stronger TL gt appetite for
• imports
• Growing income levels

Attractive
Australian Exporters

• Customs Union since 1996
• 50 of Turkeys exports go
• to EU
• Changes in regulatory regime
• More liberal FDI environment

Prospective EU member
Growing Consumer Market
Market
Attractiveness

• Majority of population lt 35
• years old
• Strong growth demographics
• of 1.5 pa
• Worlds 19th largest economy

• Is the category economically attractive to
  the average player?
• What are the key issues and trends in each
  category ?

• Is the category economically attractive to
  the average player?
• What are the key issues and trends in each
  category ?

• Is in the channel creating value ?

High
Unattractive
Diversification

Weak
Strong
Competitive Position
Low
Source Austrade, Istanbul, analysis
11
Why Turkey Makes Business Sense cont.
A growing consumer base

• 18 years
• population growing fast
• Turkey is on course to
• overtake Germany
• by 2014!
• Strong opportunities for
• Retailing, FMCG,
• Telecoms, Energy
• Utilities, Education
• Training, Healthcare.

Source Austrade, Istanbul, analysis
12
Why Turkey Makes Business Sense cont.
Households are increasing

• Urbanization rate is increasing. In 1990, 34 of
  population lived in urban areas in 2000 this
  ratio reached 48
• Better economy has improved income levels,
  especially in the 3 major cities e.g.. Istanbul,
  Ankara Izmir
• Cities that grew the most in the past few years
  Antalya, Mugla due tourism Adiyaman, Hakkari,
  Sanliufa, Sirnak due to GAP agribusiness project
  Istanbul, Izmit, Izmir, Bursa and Tekirdag from
  industrialization

13
Why Turkey Makes Business Sense cont.
Industry is performing strongly
Source McKinsey Global Institute, Turkey
February, 2003
14
Why Turkey Makes Business Sense cont.
Market Attractiveness Assessment

? low/marginal ?favourable ?high
????? ? ? ? ? ?
Source Austrade, Istanbul Analysis
15
Key Sectors Education Training

• Turkey ranked 11th in world for number of
  students receiving an education abroad
• 40,000 students go abroad annually ( USA UK)
• Less than 500 are choosing Australia
• Only one in five applicants secures a place in a
  Turkish tertiary institution
• GOT is heavily reliant on EU and World Bank
  funding for reforming sector

Current Situation

• Huge when considering 40 of a population of
  69.6m is under 18
• English language studies remains high priority
• Masters, skills upgrading VET
• Expansion of private sector universities
  technical colleges
• Big push by the Government to reach EU standards
  via EC World Bank support

Future Prospects

• Turkey ranked DIMIA category 3
• Articulated courses not recognized by Turkish
  education authorities
• Regular market visits by institutions essential
  and participation in Educational fairs highly
  recommended
• Next phase of market development will be
  institution to institution linkages

Important Issues For Exporters
Source Austrade, Istanbul, analysis
16
Key Sectors Automotive

• The Turkish market is dominated by all the global
  players as a basis for exporting to Western
  Europe/Middle East/CIS and Africa
• More than 150 foreign parts suppliers have JVs
  in Turkey to capture business in the EU and tap
  into global supply chains
• Australian OEM and after market capability is
  not well known in Turkey

Current Situation

• Industry is strong outlook due to increasing
  consumer confidence major export success
• Brake hoses, brake pads and lining, oil filter
  systems, 4 WD parts and accessories are growing
  segments

Future Prospects

• Australian companies already supplying into
  Europe have best prospects
• Average vehicle age in Turkey is 8 years compared
  to 2 in the EU!
• Companies need to consider MUL and technology
  transfer as go to market strategies due to import
  duties and logistics issues
• Very important to appoint a agent / distributor
  with strong end customer access in the OEM /
  aftermarket segments

Important Issues For Exporters
Source Austrade, Istanbul, analysis
17
Key Sectors Wine

• Opening up of market with privatisation of state
  alcohol monopoly - Tekel
• Tariffs still very high but should decrease over
  next years with strong pressure exerted from the
  EU and USA to open up market further
• Foreign wines can now be sold in supermarkets
• Distribution/market coverage is highly
  concentrated and fragmented

Current Situation

• Demand set to increase as consumers become more
  discerning /aware of foreign wines
• Turkeys 13 million tourists per year are large
  consumers mainly from EU!
• Duty Free Retail Supermarket segments will
  continue to grow by value volume
• Technology transfer opportunities set to
  expand/upgrade local producers

Future Prospects

• The appointment of reliable and active importer /
  distributor is critical to success
• Market still very price sensitive but expected to
  improve
• Importation regime is exceedingly complicated but
  recent legislation provides private companies
  with more control over imports distribution
• Restrictions on advertising alcohol but need for
  Australian A P very important

Important Issues For Exporters
Source Austrade, Istanbul, analysis
18
Key Sectors ICT

• ICT sector growing, USD900m in HW, US313m PSW,
  US479 million SC in 2003
• The top 5 IT companies have revenues of US100m
  and 3/5 are multinational
• 29 mobile penetration vs. 6 internet
  penetration and 23.5 m mobile phone users
• Telecom sector is going through major regulatory
  changes will be fully liberalized by 2006
  opening up new opportunities for products /
  services

Current Situation

• Privatization of Turk Telecom, National Lottery
  in 2004 will increase overall demand
• Mobile and ISPs are developing / acquiring new
  technologies competencies
• Best prospects in POS segment which has grown
  significantly Software (security applications,
  mobile, database business application
  software) Outsourcing Data recovery systems
  call centre systems and applications, SMART Cards
  E - Government is also scheduled to grow
  rapidly in the short to medium term

Future Prospects

• Improved environment for protection of IPR but
  industry believes that widespread violations are
  taking place
• CeBIT EuroAsia, Oct 2004 is the most important
  ICT event for Australian companies to consider as
  part of a market participation strategy for
  Turkey and the region.
• Localisation of software is very important and
  reputable local partner critical to overall
  success

Important Issues For Exporters
Source Austrade, Istanbul, analysis
19
Key Sectors Telecoms

• Turkcell dominant market leader in mobile
• Fast growing market but still under penetrated
• Penetration expected to exceed 50
• Aycell / Aria merger will create a viable third
  operator
• Aycell growing quickly in 2003 driven by
  targeting public sector customers
• Telsim recent performance / future unclear
• several members of Uzan family facing corruption
  charges
• number of large assets controlled by the family
  seized by the Turkish Government
• US court ordered Telsim to pay US4.3bn to
  Motorola for fraud

Penetration
Mobile market share EOY 2002
SourcePrivatisation Administration, Ankara, 2004
20
Key Sectors Telecoms Market

• Fully liberalised telecommunications sector by
  2004

Fixed
Mobile

• Penetration 27.1
• TT monopoly ends 31 December 2003

• Penetration 32.9
• Liberalised market
• Four GSM operators
• 3G licences not yet available

Data
Cable / other

• Internet penetration 3.8
• Primary mode of internet access via dial up
  using TT network
• VAS liberalised e.g. more than 30 ISPs
• Commercial roll out of ADSL services by TT this
  year
• Cable internet services available over TTs CATV
  network

• TT sole provider of CATV services
• CATV network operated and maintained by revenue
  sharing partners
• Satellite market liberalised
• Digitürk sole provider of DTH services

Source Privatisation Administration, Ankara, 2004
21
Key Sectors Telecoms Market cont.
The mobile market
Turkcell
Telsim

• Ownership TeliaSonera (37),
• Cukurova Group, free float
• Launched 1994
• Subscribers 15.7m
• Technology GSM 900

• Ownership Uzan family
• Launched 1994
• Subscribers 5.6m
• Technology GSM 900

Aria
Aycell

• Ownership TIM (49), Is-Bank (51)
• Launched March 2001
• Subscribers 1.2m
• Technology GSM 1800

• Ownership Türk Telekom
• Launched December 2001
• Subscribers 0.5m
• Technology GSM 1800

• Operators
• Currently a four player market but in the process
  of consolidation

SourcePrivatisation Administration, Ankara, 2004
22
Key Sectors Healthcare Medical

• Turkey relies heavily on imports for a large
  portion of its medical equipment needs
• Health sector is under-performing in achieving
  health outcomes
• Min of Health is the largest single buyer of
  medical products
• MoH MoF is reforming and restructuring health
  care system with the assistance of the World Bank

Current Situation

• Compulsory health insurance and optional private
  insurance will drive additional expenditure in
  medical products / services
• Expansion of private sector health care will be
  the new source of opportunity for suppliers
  service providers
• Services to strengthen institutional capability
  and capacity for healthcare providers is
  anticipated to grow

Future Prospects

• A large number of local medical/healthcare
  distributors have strong linkages / networks in
  surrounding markets esp. Central Asian
  Republics
• Single most important CSF is selecting reliable
  and solid agent/distributor
• Deferred payment terms are a very important
  consideration in the buying decision
• While US dominates market the EU origin goods
  benefit from the EU/Turkey customs union

Important Issues For Exporters
Source Austrade, Istanbul, analysis