Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Istanbul, and the greater Marmara region, is Turkey’s primary distribution center. The Port of Istanbul is Turkey’s largest port for imported products. Most of Turkey’s distribution channels and head sales offices are in Istanbul. Distributors maintain operations in various cities throughout the country. For some sectors, such as medical technologies, the cities of Ankara and Izmir are clusters with distributor networks that serve all of Turkey. Most distributors have a dealer network throughout the country or in areas where the product is commonly purchased. Commissioned representatives/agents periodically visit their customers, together with their U.S. principals, to maintain strong personal contacts. Truck-based distribution of goods is common whereas air and rail shipment of goods, though developing, is less common.
Using an Agent or Distributor
Unless a U.S. firm has the staff and resources to open its own office in country, the most effective means of selling in Turkey is through reliable and qualified local representatives. Personal contacts are extremely important in Turkish business, in both the private and public sector. When dealing with government tenders, local agents are often necessary to assist with bureaucratic procedures and to overcome the language barrier.
A U.S. firm should carefully investigate prospective local representatives or agents before signing a contractual agreement. CS Turkey can assist in this effort by conducting background checks and producing an International Company Profile (ICP) due diligence report on a particular company.
Agency agreements under Turkish law are private contracts between two parties. There are no fixed commissions. It is recommended that a sole manufacturer, representative, and/or distributor be appointed for the entire country, and, if necessary, the broader region. Agency agreements can be established for a period of a year, with a renewal option for a longer period contingent on agent performance. In cases where a large volume of government business is anticipated, it is recommended that U.S. companies liaise with a consulting firm either headquartered or with a branch office in Ankara.
Establishing an Office
The 2003 FDI Law was passed to encourage FDI; protect the rights of foreign investors; define ‘investment’ and ‘investor’ in line with international standards; liberate the foreign investment climate based on equal treatment and free expatriation of proceeds; and replace the screening and approval system for FDI with a notification-based system. From a strictly legal perspective, foreign-invested companies or foreign subsidiaries established in Turkey are treated the same as Turkish companies.
The FDI law established the following:
- No FDI-related screening or approval procedures to set up a business (company or branch) and share transfers, except in certain critical sectors
- Conditions for setting up a business and share transfers are the same for comparable local investors
- No pre-approval requirements for most transactions, including capital increase, change of business activity, etc.
- No requirements to register licenses, know-how, royalty, and technical assistance agreements
- No minimum capital requirements
- Permission to form partnerships and any form of company included in the Turkish Commercial Code
- Valuations by international credit agencies as well as courts or competent authorities of the investor’s country will be accepted in determining share value for marketable securities that are contributed as capital in-kind
- Foreign investors can freely establish an entity.
The law also confirms foreign investors’ existing rights based on the following:
- Foreign investors have the same privileges and obligations as domestic capital and enjoy free transfer of profits, dividends, and proceeds from sale or liquidation of an investment, fees, and royalties and/or interest payments on foreign loans.
- National or international arbitration and mediation are allowed for disputes arising from contracts involving government concessions as well as for disputes arising from private agreements,
- Foreign capital entities may employ foreign personnel in Turkey if work permits (also known as residence permits) are obtained from the Ministry of Family, Labor and Social Services.
Liaison offices are special offices that primarily conduct market research, feasibility studies, and research investment opportunities in Turkey. They are not permitted to carry out commercial activity. Foreign investors are required to obtain permission from the General Directorate of Free Zones, Foreign Investment and Services under the Ministry of Trade to open a liaison office in Turkey. Initial permission is valid for three years and may be extended for another three years depending on prior activities and future plans.
A foreign company is free to choose between a corporation, limited liability company, establishment of general partnerships, limited partnership, or branch office for its operations in Turkey. The “Anonim Şirket” (A.S.) structure is more suitable for larger enterprises, as corporations may attract many shareholders. A limited liability company structure is typically more appropriate for establishing sales and distribution entities.
The Presidency of the Republic of Turkey Investment Office provides information outlining steps for registering and establishing a company. According to the Investment Office, the process can typically be completed in one day.
CS Turkey recommends retaining an attorney or other relevant experts to obtain additional information as well as handle the application process and entity formation. Use of an accountant for tax planning is highly recommended.
The Turkish National Franchising Association, Ulusal Franchising Dernegi (UFRAD), a member of the International Franchising Association (IFA), is traditionally the first point of contact for new market entrants and is a meeting point for prospective franchisors and franchisees. Recent weakening of the Turkish economy and of consumer demand, coupled with a highly saturated market and availability of local brands mean significant challenges for new entrants. Successful foreign franchises in Turkey tend to be concentrated in fast food and apparel, though other business types are widely represented.
Companies wishing to conduct direct marketing must be legally established in Turkey and obtain an operating license from the Ministry of Trade.
In Turkey, the most popular products offered through direct marketing are cosmetics, personal care items, housewares, and home furnishings. Approximately 75% of the 1.2 million direct sales representatives are women. The market is dominated by international companies, many of which are members of the Turkish Direct Selling Association, founded in 1994.
Over the past five years, due to the rise of online retail and the increase in beauty/cosmetics stores across the country, direct marketing has declined. In 2021, the total market size was an estimated $250 million.
Although 100% foreign ownership is permitted (except in Radio & TV Broadcasting), most U.S. investment in Turkey is in the form of a joint venture or licensing operation. Most Turkish companies prefer to establish joint ventures with U.S. suppliers to manage shipping costs and compete effectively against European counterparts. Since 1996, European-origin goods have been largely duty-free due to Turkey’s Customs Union agreement with the European Union. Many U.S. firms have therefore chosen local production to both penetrate and profit from the Turkish market. The sophisticated business infrastructure present in most major Turkish commercial centers (e.g., legal support, financial, and consulting services) can greatly assist in forming joint ventures. Several major U.S. accounting/auditing firms, law firms, and banks have established branches in Turkey.
Most major express delivery companies including FedEx, TNT, DHL, and UPS are commonly used in Turkey. The government-owned international postal service, PTT, is the most affordable, but often the slowest, option. Some companies handle customs clearance and offer door-to-door delivery. Local courier services are generally reliable, fast, and affordable.
Companies can minimize the risks of doing business with a new or unknown customer or partner in Turkey by utilizing CS Turkey’s ICP service in concert with their own due diligence. An ICP provides up-to-date background information on potential partners, including bank and trade references, names of principals, key officers and managers, product lines, number of employees, financial data, sales volume, reputational risk, and market outlook.
The U.S. Commercial Service makes every reasonable effort to ensure the accuracy and completeness of the information provided to client companies.
When utilizing the information provided, the company is responsible for complying with all applicable laws and regulations of the United States, including the U.S. Foreign Corrupt Practices Act (FCPA). The ICP service can provide useful information to supplement a company’s own due diligence but does not constitute U.S. Commercial Service certification or assurance of compliance with the FCPA.