Turkish MNCs in 2012 and 2013 - Some Possible New Research Areas

Nukhet VARDAREl Izi Communications Consultancy Ltd, Istanbul, Turkey.

Paper submitted for the final conference of COST Action IS0905, “The Emergence of Southern Multinationals and their Impact on Europe”,

University of Iceland, Reykjavik, Iceland, May 19-20, 2014

pre-crisis ave.

2005-07

2007 2008 2009 2010 2011 2012 20130

500

1000

1500

2000

2500

1494

20021819

12211412

1691

13171461

Source: UNCTAD, Global Investment Trends Monitor, No: 15, January 2014

2012 figures are revised, 2013 results are preliminary estimates

18%

Global FDI Inflows(Average 2005-2007, 2007-2013;billions of USD)

11%

FDI Inflow Trends Globally For the first time developing countries took the lead in FDI,

accounting for 54%* of the total inflows in 2012 Developed countries share dropped to 39%* in 2012 and

expected to continue at that level in 2013 2013 estimates for FDI inflows went by 11%, to an

estimated US$1.46 trillion– a level comparable to the pre-crisis average. Inflows to the US continued to decline, while into EU increased

FDI flows to developing economies reached $759 billion in 2013, with increases to Latin America, Caribbean, Africa. Developing Asia is still the largest host region in the world.

* UNCTAD, Global Investment Trends Monitor, No: 15, January 2014

Turkey’s Role in the West Asia Region – in Regard to FDI

Turkey emerged as a significant investor in the West Asia group - OFDI growing by 73% in 2012 to $4.1 billion.

Turkey’s ranking climbed from 43rd in 2012 to 36th in 2013

According to 64 IPAs views, Turkey is considered as the major developing country source of FDI (most promising investor economies in 2013-2015 list)

TNCs’ Top Prospective Host Economies for 2013–2015 (Percentage of respondents selecting economy as a top destination)

Source: UNCTAD World Investment Report 2013, p. 50Base on 159 company responses. 2012 rankings are given in parenthesis.

1 China (1)2 US (2)

3 India (3)4 Indonesia (4)

5 Brazil (5)6 Germany (8)7 Mexico (12)

8 Thailand (12)9 UK (6)

10 Japan (13)11 Russian Federation (8)

11 Viet Nam (11)13 Australia (6)14 Poland (14)

15 S. Africa (14)16 Canada (-)

16 France (19)16 Malaysia (19)

19 Hong-Kong (-)19 Philippines (-)

19 Turkey (-)

0 5 10 15 20 25 30 35 40 45 50

46.0045.00

31.0026.00

19.0018.00

17.0015.00

14.0013.00

11.0011.00

10.009.00

8.006.006.006.00

5.005.005.00

Developing economies

Transition economies

Developed economies

Turkey’s Role in the West Asia Region – In Regard to IFDI

Turkey was less fortunate in regard to FDI’s inflow growth rate in 2012

Although Asia accounted for 58% of FDI to developing countries, inflows to developing Asia fell by 6.7%

Inflows to West Asia declined for the 4th consecutive year

But with $12 billion inflows in 2012, Turkey became the top country (24th among countries that attracted the most FDI, 14th among emerging economies)

The Development of OFDI in Turkey

Neo liberal economic practices of 1980s Privatization wave in 1990s Customs Union in 1996

Attracting foreign investors, possible licensing and JV agreements

As a result Turkish MNCs developed lower cost alternatives, not to lose their competitive edge in the domestic market

When domestic market shrunk, new business models transferred to international markets

Development of Inward and Outward FDI in Turkey (2005- 2012; in million USD)

2005 2006 2007 2008 2009 2010 2011 20120

5000

10000

15000

20000

25000

10,031

20,18522,047

19,760

8,663 9,036

16,047

12,419

1,064 9242,106 2,549

1,553 1,4642,349

4,073

FDI Inflows FDI Outflows

Source: UNCTAD World Investment Report 2012 and 2013

Turkish MNCs Mode of Investment in OFDI (in percentage)

78

193

GreenfieldM&AJoint Venture

Source: Yurtdışı Doğrudan Yatırım Raporu 2012, Hazine Müşteşarlığı, Mali Sektörle İlişkiler ve Kambiyo Genel Müdürlüğü, Ekim 2013 (Turkish OFDI Report prepared by the Turkish Treasury in October 2013)

Turkish Treasury’s research based on Turkish MNCs, representing 95% of Turkey’s total OFDI

Turkish MNCs Reasons for Going Abroad (in percentage)

Increasing market alter-natives – 43%

Labor cost advantages -9%

Economical and political sta-bility of the host country -7%

Tax advantages- 7%

Other raw mate-rial cost advan-

tages- 6%

Other- 28%

Source: Yurtdışı Doğrudan Yatırım Raporu 2012, Hazine Müşteşarlığı, Mali Sektörle İlişkiler ve Kambiyo Genel Müdürlüğü, Ekim 2013 (Turkish OFDI Report prepared by the Turkish Treasury in October 2013)

Turkish MNCs’ Investment Decision Drivers*

New markets & market diversification

Sustainable growth

A way to manage risk

Accessing natural resources & reducing costs

0 10 20 30 40 50 60 70 80

75

60

50

39

Source: Vale Columbia Center on Sustainable International Investment (VCC), Kadir Has University and the Foreign Economic Relations Board (DEIK), The Emerging Market Global Players (EMGP) Project, December 3, 2009; January 31, 2011 and March 24 2014 reports

Since 2011 report, no. of Turkish MNCs with OFDI $100 mio and above rose from 19 to 29

Some Further Observations Made on the Vale Report

Increasing tendency by Turkish MNCs towards mining, energy, infrastructure

Though not mentioned in the report, an increase in - MENA & SubSaharan 2 % (2009), 17% (2011) and 12% (2013)

- NA,LA, Caribbean 2 % (2009), 6% (2011) and 4% (2013)

Turkish Treasury data also supports this

The Need to Look Beyond Offical Figures

The reality of undisclosed deals and deal amounts This fact could have much more impact for some

countries Sometimes the official figures could be one half, or

even one third of the estimates Therefore Turkey’s potential in OFDI and IFDI could

be underestimated if only official figures are considered

Turkey’s M&A Purchases According to Two Different Sources

(in million of USD)

2005 2006 2007 2008 2009 2010 2011 2012 20130

500

1000

1500

2000

2500

3000

3500

199356

767

1,313

0 38

908

2,012

0 0

1,626 1,600

197

1,218

2,884

3,200 3,300

UNCTAD Deloitte

Source: UNCTAD World Investment Report 2012 and 2013; Turkish Outbound M&A Review 2012-2013, Deloitte, February 2014Deloitte figures include estimates, whereas UNCTAD reports only the official figures.

Some Recent Trends Highlighted by Deloitte

The average deal amount is nearly halved compared to previous years ($61 mio)

This is due to crisis and lower valuation of companies. Also an indication that OFDI is moving towards medium sized Turkish MNCs

For the first time Turkish MNCs made OFDI in Brazil, Mexico and Thailand

S. African Defy bought for $324 mio by Arçelik in 2011

Turkish OFDI Studies by Academia

Although not exclusive, the literature mainly looks into firm specific capabilities and Turkish companies’ reasons for OFDI, such as Erdal & Tatoglu, 2002; Erdilek, 2003, 2005, 2008; Kaya &Erden, 2008; Demirbag & Tatoglu; 2008, Kok & Ersoy, 2009; Kayam & Hisarcıklılar; 2009; Eren-Erdoğmuş, et al. 2010

Or choice between acquisition and Greenfield entries are studied by Demirbag et al., 2008

Equity-based entry modes by Demirbag et al; 2009 Performance of foreign equity ventures by Kaya & Erden, 2007 Anıt et al. (2011) compare inward and outward FDI determinants in Turkey These valuable studies tell us a lot about the Turkish MNCs’ past FDI

patterns and lay the necessary foundations to build upon However early indicators mentioned in business reports should be seriously

considered by the academia and integrated into the research

Some Possible New Research Areas for Turkish OFDI Studies

If OFDI is getting more widespread among medium sized Turkish firms, how would they differ in their entry strategies compared to larger Turkish MNCs?

If new sectors have emerged in Turkish MNCs OFDI such as energy, manufacturing and real estate compared to the more traditional sectors such as food and beverages, how would this will have an impact on Turkish OFDI?

Although EU and CIS are still important destinations for Turkish MNCs, Latin America and Africa are getting popular. How would different destinations affect their entry modes, entry strategies?

In addition private equity companies have started playing important roles especially in inward FDI but their roles are not studied in regard to IB. (For instance Yardımcıoğlu & Demirel (2008) look into its effect in relation to entrepreneurship).

Some Possible New Research Areas for EMNCs based on Accenture

1) Increase in global middle class - Currently 27 other economies-including Poland, Colombia and Turkey -have a greater number of households with an annual income above $30,000.

In richer income segment, Turkish households with an annual income of more than $50,000 will see a total increase of $380 billion household income by 2020, the highest of any emerging economy.

Some Possible New Research Areas for EMNCs based on Accenture

2) Low-cost business models - Emerging middle classes mean that more and more people want to enjoy better life styles at affordable prices.

‘Better product/service quality for masses at affordable prices’ will continue to be crucial for emerging countries, as technology becomes more widespread.

The low-cost business models are especially important in understanding Turkish MNCs OFDI successes.

Some Possible New Research Areas for EMNCs based on Accenture

3) The southern-surge in financial services - High growth rates and emerging middle class will also increase the demand for mobile banking, micro-finance and insurance.

4) Infrastructure - both a potential growth area as well as a restraining factor in emerging countries, due to the lack of infrastructure.

5) The growing importance of citizen services such as healthcare, education, housing, transport will continue to get recognition.

6) Since there will be more need for qualified personnel, transfer of knowledge and transfer of education will have a higher priority, possibly leading to distance learning or satellite campuses.

Suggestions for Future Research UNCTAD forecasts FDI flows to $1.6 trillion in 2014

and $1.8 trillion in 2015 Emerging countries will continue to be major interest Move outside of the conventionally defined research

variables, amalgamating business report findings, with that of the academic look

This chain of thought could also be applied to other EMNCs.

EMNCs move very fast, adapting to changing market conditions almost instantaneously.

The academic work published should also gear to this speed.

Turkish MNCs in 2012 and 2013 - Some Possible New Research Areas

Nukhet VARDAREl Izi Communications Consultancy Ltd, Istanbul, Turkey.

Paper submitted for the final conference of COST Action IS0905, “The Emergence of Southern Multinationals and their Impact on Europe”,

University of Iceland, Reykjavik, Iceland, May 19-20, 2014